If I understand your question correctly, you are wondering
how the cost of things such as assembly, testing, and marketing affect the final selling
price of a product. All of these, with the exception of possibly marketing which I will
further discuss later, are actually variable costs as opposed to fixed costs. That
isn’t to say they don’t have a direct impact on the price of a product though. It
depends individually on the business plan to determine how great an impact each has. I
currently work for a company in the Audio Visual industry that acts as a manufacturer,
an OEM, and as a reseller. Our average markup, not considering volume orders or
“Premium” customers, is 60 points. Our products are low cost but have a high mark up.
With products we manufacture, assembly and testing are the responsibility of our
production staff. Production workers are paid an hourly wage which makes them a
variable cost but in this instance they directly affect the selling price. This is our
labor cost which we calculate at a per hour, per product rate. Combing labor cost with
cost of raw materials and adding 60 points is how we determine the selling
price.
Marketing is something that can be a variable or
fixed cost but in the example I stated above has the least affect on the selling price.
Marketing can be a variable cost if you are spending directly per campaign. More
commonly, if you hire a marketing coordinator or staff, they are usually salaried
employees which would then make them a fixed cost. The reason this has the least affect
on the selling price in my example is that these positions weren’t added until our sales
volume justified the company to budget for these positions. The company didn’t raise
their prices as a result though. Our marketing plan until these hiring’s had only been
direct sales and trade show participation. Our sales staff is constantly embattled with
management to raise our marketing budget. Neither side wants to raise prices though.
Sales believes that if you sacrifice profit in the short run, it will yield you more in
the long.
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