KEY
POINTS:
• Trade allows us to enjoy products and services made or
grown outside our own communities
• Trade allows us to sell what we make or grow outside
our own communities
• Trade is a two-way street: in order for other countries
to buy our products and services, they have to be able to sell
the products that they make
ACTIVITY 1: What would life be like without trade? (all ages)
Compile
a list of the products/services that are most popular in your
class (MP3 players, Razor scooters, video games, fast food
and so on). List where these items are made.
Compile
a list of the products/services that are made/available in
your community.
Compare
the two lists and discuss what life would be like if you eliminated
everything that is not made in your community.
Activity
2: What would it cost to make a product in your community?
(7th and up)
Use
this formula to calculate how much a manufacturer gets for
their product:
| A. |
Divide
the retail price in half. This is the price the retailer
pays the distributor or brand name company. So
a $60.00 pair of jeans costs $30.00 at wholesale. |
| B.
|
Divide
the wholesale by price in half. This is what the distributor
or brand name company pays the manufacturer. So for that
$60.00 pair of jeans, the manufacturer got $15.00. |
| C. |
Let’s
assume that for goods made outside North America and Western
Europe, the labor cost will be 15%* of the price that
the manufacturer gets for their product, or in this case,
$2.25. The balance of the $15.00 goes to materials, overhead
and profit. |
| D. |
What
does this cost translate to in terms of hours of labor?
For example, if the labor cost is $2.25, and the hourly
wage in the country of origin is .25¢, then the item
took nine hours to make the jeans. |
| E. |
Refigure
the cost of the item. Add the labor cost using the minimum
wage in your community to what the manufacturer must charge.
So if the minimum wage is $6.50 instead of .25¢,
the manufacturer must charge $58.50 for labor, plus their
cost of goods and overhead (divide the labor cost by 15%),
for a total of $390.00. The wholesaler will double that
to $780.00, and the retailer will double that to $1560.00. |
| F. |
Can
you afford to buy these jeans for $1,560.00? |
| G. |
Refigure
the cost changing just the labor cost. So in the example,
leave the materials, overhead and profit at $12.75. Add
$58.50 for labor. The manufacturer will now charge the
retailer $71.25, the wholesaler will charge the retailer
$142.50 and you’ll have to pay the retailer $285.00.
Now can you afford the jeans? |
* Teacher note: The 15% number for labor cost
is derived from a 1999 Nikebiz.com article regarding their shoes.
The complete formula is as follows:
| Example
(from Nikebiz.com, 1999) |
$$
|
%
|
| Materials |
$10.75
|
66.15%
|
| Labor |
$2.43
|
14.95%
|
| Overhead
& Depreciation |
$2.10
|
12.92%
|
| Factory
Profit |
$0.97
|
5.97%
|
| Factory
Total |
$16.25
|
100.00%
|
|
| Wholesale
Price |
$32.50 |
200.00% |
|
| Retail
Price |
$65.00 |
400.00% |
In
reality, the manufacturer’s non-labor costs will not
change in such a linear fashion. But they will change from
country to country. The raw materials cost will be impacted
by labor costs to transport the items, overhead costs are
dramatically affected by labor costs and land values, and
profit margins must yield enough cash to pay for higher costs
in higher cost locations.
What
changes in this formula would make the product more affordable
if it was made in your community? How would these things be
possible?
• Different percentages for cost of materials and overhead
• Different percentage for profit
• Lower wages
• More efficient production (requires capital investment
in better equipment)
Classes
may also want to investigate the additional costs of doing
business that wholesalers and retailers have. For example,
shipping, customs, distribution, warehouses, advertising,
retail space, salaries, taxes, utilities, displays.
Use
this approach to examine what your favorite items would cost
if they were made in your own community.
| H. |
What
are the implications for costs of production vs. higher
standards of living in poorer countries?
Does
this mean we “need” to keep some countries
poor so we can have jeans at a cheap price?
Does it mean we need to look for alternative methods
of making jeans?
If so, what are the options?
Does it mean we need to make other changes? Which ones?
|
Suggestions for Assessment
Activity 1: Check charts and records for completeness, thoughtfulness.
Activity 2: Check for accuracy, construct further examples
for test after students have memorized the formula.
|
