Financial Analysis

A cost analysis was conducted to give an indication of the different costs and potential profits. Per point of the costs analysis there is a description of estimated prices and how those were established. Three scenarios were analyzed: the worst, expected and the best scenario. The worst scenario is 50% higher costs than the expected scenario and the best scenario has 50% lower cost than the expected scenario. There are also two scenarios concerning the sales price of the entire SlimLine package. Scenario one is with a sales price of €30, the original sales price. The second scenario is with a reduced sales price of €20, in case of unexpected circumstances, such as new competition. Thus, In total six different scenarios are calculated with six different profits or losses

Material costs

The material costs are an estimation of the real material costs. A 3D model of the SlimFit was made in SolidWorks, using this model the volume of materials could be estimated. The material costs in €/m3 could then be determined using CES edupack. Calculations yielded a material cost of €1.06 per SlimFit. The thin walls inside the canvas bag are made of recycled plastic from EMSA’s factory, so negligible costs are assumed here.

Processing costs

The process costs are a very rough estimation, as no specific information could be acquired online. It is assumed to be somewhere around €5 per product.

Investment cost

For the canvas bag low costs are expected, because of the knowledge and already existing machinery of the weaving company. However, there are some development costs for the product. Assuming a small design team of two people, who are being paid €60/hour on average and works on the project for two full weeks. Salary costs are then €9,600. Other costs, like for the software, order costs, prototype costs etc to be €25,000. So a total cost €34,600.

In the costs analysis document a first production run of 10,000 products is taken. The full development costs are spread over the first batch. That also means when EMSA decide to make also a second batch, the profit per product is more than of the first batch.

Profit

Bottom line, in the end profit is about €7,66 per product according to our calculations for the sales price of €30. It depends a little bit on the country where you sell your product due to the sales tax. Of course it also depends on the level of transportation costs. If all the costs are 50% lower than expected EMSA makes a profit of €16,23 per product, again for a sales price of €30.

Direct and indirect costs

The direct costs, the investment which EMSA has to make, are €34,600. All the extra costs, the costs made for producing one extra product, are €13.67.

Break even point

According to the calculations the break even point of our product is at 2,199 products for a sales price of €30.

Other scenario

A cost calculation for when the sales price is less than €30 is also made. Let’s say that the sales price will go down to €20, due unforeseen competition or other circumstances. According to the cost calculations (download sheet), when EMSA sells the product for €20, the break even point is reached at 4,765 pieces. That is an additional 2,647 pieces compared to the scenario of €30.