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Why Aren't Shoes Made in the USA?

Having just paid $70 for a pair of athletic shoes that were made in China, you wonder why

they had to be made in that country. Why weren't they made in the United States, where lots

of people need good-paying jobs? You also figure that the shoe company must be making a

huge profit on each pair it sells. Fortunately, you were able to get a breakdown of the costs

for making a pair of $70 athletic shoes:

Production labor

$2.75

Materials

9.00

Rent, equipment

3.00

Supplier's operating profit

1.75

Duties

3.00

Shipping

0.50

Cost to the Manufacturer

$20.00

Research and development

0.25

Promotion and advertising

4.00

Sales, distribution, administration

5.00

Shoe company's operating profit

6.25

Cost to the Retailer

$35.50

Retailer's Rent

9.00

Personnel

9.50

Other

7.00

Retailer's operating profit

9.00

Cost to Consumer

$70.00

You're surprised at a few of these items. First, out of the $70, the profit made by the

manufacturer was only $6.25. Second, at $2.75, labor accounted for only about 4 percent of

the price you paid. The advertising cost ($4.00) was higher than the labor cost. If labor isn't

a very big factor in the cost of the shoes, why are they made in China?

1.Recalculate the cost of producing the shoes in the United States and two other

countries of your choice. Because operating profit for the supplier, the shoe company, and

the retailer will change as the cost to make the shoe changes, you have decided to determine

this profit using the following percentage rates:

1.Supplier's operating profit: 10 percent of its costs