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Exercise #2: You are a product developer for Banana Republic. At Emporio Armani, you find a stretch woven short of 95% cotton and 5% spandex which would be perfect for development. You cut it in half and Fed Ex one half to your agent in Hong Kong. Your agent in Hong Kong gets a 6% commission. He goes to his salesman at Excel Pants who estimates a fabric cost of $3.50 per yard and a fabric consumption of 2.2 yards per short. CMT on the garment will be $4.00 per piece. Sea freight from Hong Kong will cost $.40, and Misc. charges will run $1.10 per short. The other half short is sent to Sri Lanka. The agent there gets a 5% commission. She finds out that the fabric is unavailable in Sri Lanka and will have to be imported. This brings the fabric cost to $4.50 per yard; the consumption is estimated by Royal Sri Slacks Co. at 2 yards per short. CMT is lower in Sri Lanka... for this garment it will be $3.00. Sea freight is high from Sri Lanka, $.75 per garment. Misc. charges will run $1.00 per garment. How much will this short land from each of the 2 countries? Based on price alone, which country would you pick to do this program in? Use the chart on the next page: Hong Kong $ yards @ $ per Fabric Cost ( yard) Cut-Make-and-Trim +$ Total First Cost =$ Agent's Commission ( % $ Duty Rate ( % +$ Freight (air or sea?) Misc. (Insurance, Finance Charge, Broker, +$ Cartage) +$ Total Landed Cost $ Sri Lanka $ per Fabric Costa yards @ $ yard) Cut-Make-and-Trim +$ Total First Cost =$. Agent's Commission ( %) Duty Rate % Freight (air or sea?) Misc. (Insurance, Finance Charge, Broker, Cartage) $ +$ +$ Total Landed Cost -$ Then, for the garment that landed the LOWEST, calculate the retail price difference if you worked for Polo Ralph Lauren (and sold the garment to Bloomingdale's) vs. Banana Republic... Let's assume that Polo uses a 55% markup and Bloomingdale's uses a 50% markup. Let's also assume that Banana Republic uses a 65% markup on their private label. For Banana Republic: $ $ For Polo Ralph Lauren: Landed Cost $ Wholesale Price to $ the retailer (using % markup) Retail Price to the $ consumer (using % markup) Landed Cost Retail Price to the consumer (using % markup) Duty Rates on Common Categories Cotton knit shirts (except T shirts and tanks) Cotton T shirts and tanks Silk knit tops Cotton slacks, shorts Raime/cotton blend sweaters Wool sweaters Cashmere sweaters Cotton outerwear Cotton outerwear if coated with a water-resistant finish Leather outerwear 20.0% 17.4% 1.4% 15.3% 5.0% 16.1% 4.4% 16.1% 6.2% 6.0% Exercise #2: You are a product developer for Banana Republic. At Emporio Armani, you find a stretch woven short of 95% cotton and 5% spandex which would be perfect for development. You cut it in half and Fed Ex one half to your agent in Hong Kong. Your agent in Hong Kong gets a 6% commission. He goes to his salesman at Excel Pants who estimates a fabric cost of $3.50 per yard and a fabric consumption of 2.2 yards per short. CMT on the garment will be $4.00 per piece. Sea freight from Hong Kong will cost $.40, and Misc. charges will run $1.10 per short. The other half short is sent to Sri Lanka. The agent there gets a 5% commission. She finds out that the fabric is unavailable in Sri Lanka and will have to be imported. This brings the fabric cost to $4.50 per yard; the consumption is estimated by Royal Sri Slacks Co. at 2 yards per short. CMT is lower in Sri Lanka... for this garment it will be $3.00. Sea freight is high from Sri Lanka, $.75 per garment. Misc. charges will run $1.00 per garment. How much will this short land from each of the 2 countries? Based on price alone, which country would you pick to do this program in? Use the chart on the next page: Hong Kong $ yards @ $ per Fabric Cost ( yard) Cut-Make-and-Trim +$ Total First Cost =$ Agent's Commission ( % $ Duty Rate ( % +$ Freight (air or sea?) Misc. (Insurance, Finance Charge, Broker, +$ Cartage) +$ Total Landed Cost $ Sri Lanka $ per Fabric Costa yards @ $ yard) Cut-Make-and-Trim +$ Total First Cost =$. Agent's Commission ( %) Duty Rate % Freight (air or sea?) Misc. (Insurance, Finance Charge, Broker, Cartage) $ +$ +$ Total Landed Cost -$ Then, for the garment that landed the LOWEST, calculate the retail price difference if you worked for Polo Ralph Lauren (and sold the garment to Bloomingdale's) vs. Banana Republic... Let's assume that Polo uses a 55% markup and Bloomingdale's uses a 50% markup. Let's also assume that Banana Republic uses a 65% markup on their private label. For Banana Republic: $ $ For Polo Ralph Lauren: Landed Cost $ Wholesale Price to $ the retailer (using % markup) Retail Price to the $ consumer (using % markup) Landed Cost Retail Price to the consumer (using % markup) Duty Rates on Common Categories Cotton knit shirts (except T shirts and tanks) Cotton T shirts and tanks Silk knit tops Cotton slacks, shorts Raime/cotton blend sweaters Wool sweaters Cashmere sweaters Cotton outerwear Cotton outerwear if coated with a water-resistant finish Leather outerwear 20.0% 17.4% 1.4% 15.3% 5.0% 16.1% 4.4% 16.1% 6.2% 6.0%