Estimating Costs For Dealer Pricing.

[WidowMaker]

Up until this point i have sold baits to individual fishermen at retail prices. Ive determined its now time to introduce them into select retail stores. I will be selecting two to three independantly owned regionally located stores per state.

I am not that familiar with the paper work that may be involved in doing so and will be enlisting the aid of an accountant to help me with the process. I have also sent Mr. Dick Nite a PM requesting him to do a Tackle Underground tutorial concerning the 10% FET and a formula for estimating the collection of this tax.

I am not going to have the luxury of setting the dealer prices in the same manner as that of my present retail prices. My present retail prices are partially based on ROUNDED NUMBER COSTS of materials and ESTIMATED TIME SPENT assembling and packaging products. I realize it is necessary that my dealer pricing should be calculated to the "t" in order to get product into the stores at an allowable dealer price.

I will have to thoroughly cover the following areas:

(A) Expense of materials.

( Expense of packaging/labeling.

© Expense of man hours involved in production/packaging of product.

(D) Am i missing anything here???

This part is a bit vague to me.

Just how much of a percentage does one mark the product up to achieve the dealer price???

The FET Tax.

The 10% FET comes into effect after the dealer price is established. Would i want to take it out of the final dealer price or add a bit to the dealer price withdrawing the FET leaving the final dealer price???

What about the following.

Shipping containers/materials cost.....where would this fit in.

Shipping rate charges.....do i or the retailer pay this??? If the retailer pays this then the shipping materials cost could be added to it.

[dicknite]

I'll try to answer a few of these Q's one at a time... I don't consider myself an expert on pricing by any means, so take this with a grain of salt and see what works for you.

I am not that familiar with the paper work that may be involved in doing so and will be enlisting the aid of an accountant to help me with the process. I have also sent Mr. Dick Nite a PM requesting him to do a Tackle Underground tutorial concerning the 10% FET and a formula for estimating the collection of this tax.

While the form the government has you fill out is a little difficult to navigate, the formula for estimating is simple... 10%. 10% of product sales dollars received.

I'm not sure what you mean by "collection of the tax." I guess you are trying to figure it into the price of your product, and you should. So, figure the price of your lures and then multiply by 1.1. If you ever sell to an exempt retailer/wholesaler, then you can back it out of the price by multiplying by .909091. Most of your sales will have it included.

I will have to thoroughly cover the following areas:

(A) Expense of materials.

( Expense of packaging/labeling.

© Expense of man hours involved in production/packaging of product.

(D) Am i missing anything here???

Taxes, Profit, lights, heat, phones, advertising, rent... - COGS... Cost of Goods Sold.

This part is a bit vague to me.

Just how much of a percentage does one mark the product up to achieve the dealer price???

Don't feel like the Lone Ranger - it's vague to most of us. I'd say price it to what the market will bear...

It might be easier to work the other direction - see what the product sells for retail, then, since you are selling to retailers, back the price down 25% - 40% (this allows for the dealers profit) and set your price there - then take out the COGS and Taxes - you'll know your profit.

The FET Tax.

The 10% FET comes into effect after the dealer price is established. Would i want to take it out of the final dealer price or add a bit to the dealer price withdrawing the FET leaving the final dealer price???

I'm not sure what you mean by "take it out"... Dealers pay the tax to you. The 'Original Manufacturer' collects the tax and sends it to Uncle Sam.

What about the following.

Shipping containers/materials cost.....where would this fit in.

Shipping rate charges.....do i or the retailer pay this??? If the retailer pays this then the shipping materials cost could be added to it.

All that is figured into the COGS. Most companies charge for shipping up to a certain invoice amount - for example, we pay for shipping on invoices at/above $500.

Don't know if this helps...

d|:^)

Dick

[WidowMaker]

Thanks for the information.

This is the formula i devised to estimate the wholesale price of a product.

Component No. 1

(1) Jig Hook

(2) Lead Material

(3) Casting Time

(4) Cutting Sprue/Inspection.

(A) Cost of Completed Component No. 1

Component No. 2

(1) Wire Shaft

(2) WS Components

(3) Assembly of WS

( Cost of Completed Component No. 2

Component No. 3

(1) Swivel

(2) Split Ring

(3) Blade

(4) Assembly of Components

© Cost of Completed Component No. 3

Component No. 4

(1) Skirt Material

(2) Skirt Band

(3) Assembly of Skirt

(D) Cost of Completed Component No. 4

Component No. 5 - Individual Product Packaging.

(1) Bag

(2) Label

(3) Assembly of Labeled Package

(4) Packaging Individual Product

(E) Cost of Completed Packaging Component No. 5

Final Component Assembly.

(1) Cost of Component No. 1

(2) Cost of Component No. 2

(3) Cost of Component No. 3

(4) Cost of Component No. 4

(5) Cost of Component No. 5

(F) Cost of Final Component Materials and Assembly Resulting in the Packaged Product

This should give me the base material and assembly cost resulting in a packaged product ready for availability at the wholesale price.

Estimating product mark up from the base material/assembly cost of the packaged product by adding a percentage mark up resulting in the wholesale price for the retailer.

(1) Base price of packaged product.

(2) Percentage markup up from base price of the packaged product to that of the wholesale price.

Facility costs such as insurance, rent, utilities, phone/internet service and so forth arent a big concern for me right now because i use a separate part of my house for storage and workshop. But i do realize these are common additional costs related to conducting business.

Until this point ive only sold on a retail basis to individual customers and collected the excise tax on the retail sale price of the product. If it were a $10.00 sale i would deduct the 10% excise tax from the initial $10.00 price of the product.

Im still a little confused as to who is responsible for collecting and paying the 10% Federal Excise Tax when it comes to the two following areas:

(1) Wholesaling to the dealer (my final sale of the product) who then in turn sell to the retailer.

(2) Wholesaling (by-passing the dealer) directly to the retailer.

[dicknite]

Until this point ive only sold on a retail basis to individual customers and collected the excise tax on the retail sale price of the product. If it were a $10.00 sale i would deduct the 10% excise tax from the initial $10.00 price of the product.

Im still a little confused as to who is responsible for collecting and paying the 10% Federal Excise Tax when it comes to the two following areas:

(1) Wholesaling to the dealer (my final sale of the product) who then in turn sell to the retailer.

(2) Wholesaling (by-passing the dealer) directly to the retailer.

Widowmaker' date='

The IRS collects the tax from the Manufacturer, Producer, or Importer.

There is [b']no[/b] difference depending on who you sell it to - you, being the manufacturer, are responsible for collecting and paying the tax.

You can get all sorts of information on the IRS website:

http://www.irs.gov/instructions/i720/ch02.html#d0e866

Sport fishing equipment (IRS No. 41). The tax on sport fishing equipment is 10% (.10) of the sales price. The tax is paid by the manufacturer, producer, or importer. Taxable articles include fishing rods and poles (and component parts), reels, fly fishing lines (and other lines not over 130 pounds test), fishing spears, spear guns, spear tips, terminal tackle, fishing supplies and accessories, and any parts or accessories sold on or in connection with these articles. See Publication 510 for a complete list of taxable articles. Add the tax on each sale during the quarter and enter the total on the line for IRS No. 41.

So, if you sell it for a dollar - you send the government $.10. "The sale price" refers to the price you sell it for, inclusive of all discounts.

If you sell out of the country, or sell to someone with a Form 637 (Excise tax Registration) on file (which would be someone who is using your product as a component of their product), you back the tax out of your price by dividing the price by 11 and then multiplying the result by 10 - or multiplying the price by .909091.

Hope this helps.

d|:^)

Dick

[WidowMaker]

That was the way i thought it was supposed to work. The tax is to be paid by the person who does the final assembling of the components into a finished fishable product. I just wanted to break it all down just in case i had missed something somewhere.

Thanks for your input.....it is sincerely appreciated.