The total estimated consumer cost for Oltó is £120. The reasons and justifications for this cost can be found on this page
Component Costs = £81.04
For justification of component costs, please view BOM and Technical Drawings
Tooling and Machinery / Upfront Costs = £67,979
Injection Mould Tooling = £57,078
Before processes such as injection moulding can begin, first the moulds must be manufactured by an expert. If more than 1000 parts per year for some years are being manufactured, a 1-16 impression mould tool will be required which can cost something in the region of £3,000 – £20,000 to make and take anywhere between 5-12 weeks to be made (Aztec Mouldings, 2020). The estimation for each piece of tooling was calculated using the following average cost generator: http://www.icocity.com:8060/cost/CostCalculation.jsp
Laser Cutter Purchase = £2901
Paying for a laser cutting service is affordable, however it is a cost that will never be overcome. Some laser cutters on the market can cost over £50,000, but the parts being manufactured for this product are very simple and do not require the same level of accuracy and detail. A more suitable option for this manufacturing process is to purchase a laser cutter. After thorough research into the market, the chosen model was the STJ1390 style. Here is a link to the model:
General tooling and factory supplies = £8000
Once a location to manufacture has been obtained, a lot of work will be required to get it up and running. The staff will require a range of tools such as screw drivers, soldering irons, work benches, clamps, etc. and also office items such as computers, a microwave, a refrigerator, seating, etc. This estimate is very hard to produce without first knowing what the space is like, but an over estimate was made. It is better to over estimate the cost than to under estimate it and require more funding.
Fixed Overhead Costs = £116, 160 per Annum
Staff Employment = £103,740 Per Annum
The most affordable method of paying for staff is to outsource the work to somewhere like China, where the minimum wage is between 11.6 and 15 yuan (£1.32 – £1.71) per hour (Statista, 2019). Although this is more affordable, it does come with some difficulties such as language barriers, and shipping costs. As the product is a life saving device, I believe consumers would be more comfortable knowing that it was made in the UK, where the quality can be assured. The minimum wage in the UK for 25 and over is £8.72 (Gov.UK, 2020). In order to keep company morale, this price will be increased to £9.50.
There are 6 components / steps to manufacturing this product, meaning 6-7 members of staff will need to be employed. 1820 hours per year x 6 employees x £9.50 = £103,740
Rent £12,420 per annum
The average cost of warehouse rent is £0.69 per square foot per month (Prologis, 2020). As this is a relatively small operation, 1,500 square feet should be adequate.
Variable Overhead Costs = £10,000 Per Annum
Variable overheads are costs that will change depending on usage. Key examples are electricity usage, water usage, part storage, etc. As the company expands, so does the variable overheads. Eventually fixed overheads also become variables as more staff and space may be regularly required.
It is very difficult to work out the cost of the variable overheads, so instead, a budget will be set that should not be exceeded for the first few years of production.
Total Costs Per Unit = £90.04
The product is relatively complex, but straight forward to assemble. I estimate that around 14,000 units can be made per year, which is just over 50 units per working day
Fixed over heads Per Unit = £8.30
£116,160 (annual fixed overheads) / 14,000 (Units made per year) = £8.30
Variable over heads Per Unit = £0.70
£10,000 (annual fixed overheads) / 14,000 (Units made per year) = £0.70
Material Components Per Unit: £81.04
Unit Consumer Cost and Profit
Installation of conventional fire sprinklers costs £1,150 for a small flat. It is vital that this product is much more affordable than the conventional fire sprinkler so that high rise buildings can afford them. I have chosen to price each unit at £120. This is a lot cheaper than the competitor, provides substantial profit per unit and is expensive enough for consumers to trust its quality.
Consumer Cost = £120
Proft = £29.96 = 33%
Profit Per Year = £29.96 x 14,000 (Units made per year) = £419,440 (If all Units Sold)
Break Even Time = 67,979 (upfront costs) / (419,440/365 = 1,149.2) = 59 Days (If all Units Sold)
Other Costs
Cutting into the profit margin are costs that have not been calculated in the above research. These costs include, but are not limited to: Legal contracts, accountants, advertisement, product packaging, product recalls, product safety testing, factory maintenance, freelance employment, transport and shipping. These costs have not been calculated because they are specific to certain scenarios, but should be kept in consideration.
