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Nike Cost Analysis

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Cost Analysis Cost Analysis Miss Moe Pwint Lwin Faculty: Mr. Amit Sharma ECONOMICS ECO 301 Assignment 3 COST ANALYSIS OF NIKE People produce and sell goods for the profit they are getting out of the production. Business is only profitable when it covers the expenses of production and provides the increase in wealth of an investor(s) making the investments. Production is the output of business. Productivity takes this output, and measures it against the inputs used to create it. These inputs are the four factors of production-land, labor, capital and enterprise Depending on the product they are selling, entrepreneurs need to choose the most efficient way to make their products. Their choice is influenced by the type of product they are making, and the output they require. Job Production occurs where a single product is made to customer requirements. This kind of production is best suited for making cars or airplanes. Batch production involves making similar items in set numbers such as fashion clothing. Mass production creates large numbers of identical, standardized products. This production method is suitable for business which produces daily consumable products. Just in time production reduces the costs of stockholding, by any delivery problem can halt all production. ...read more.


It is a great opportunity to market the products after production within a country like China where a great number of population could be the consumers. They are currently number one athletic brand in China. Nike began to subcontract and outsource the shoe production to lower cost producers in third world countries, medium and small-scale companies in East Asia, particularly Taiwan and South Korea. Today Nike is operating and contracted with over 20 countries worldwide, 180 factories world wide which 1/3 of the factory is in China. China is currently now the biggest shoe producing country in the world, making the world's top brand-name sports shoes. Nike employs over 18,000 workers in china. Breakdown of costs for a pair of Nike shoes from an Indonesian plant Production labour $2.75 Materials $9.00 Rent, equipment $3.00 Supplier's operating profit $1.75 Duties $3.00 Shipping $0.50 Cost to Nike $20.00 Research and development $0.25 Promotion and advertising $4.00 Sales, distribution, admin. $5.00 Nike's operating profit $6.23 Cost to 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 Breakdown of costs for a pair of Nike shoes from a China plant Production labour $1.25 Materials $9.00 Rent, equipment $3.00 Supplier's operating profit $1.75 Duties $2.00 Shipping $0.50 Cost to Nike $17.50 Research and development $0.25 Promotion and advertising $4.00 Sales, distribution, admin. ...read more.


Nike reported net revenues of $15.0 billion, a 9 percent increase from FY05.It grew by 7% from 2006 at the fiscal 07. The variances in cost to be concerned are variable costs such as labor costs and material costs in the long run. The prices of sneakers are going up prices compare to what it used to cost back in 30 years. Within 10years from now on, the price for the same pair of sneakers could go up twice. The decision to produce a product is mainly concerned with the indirect costs to the production. With the amount of profits percentage they are receiving, in the case of Nike, elasticity in cost is not very likely to face loss. It could affect the percentage of profit due to costs in production. Therefore as a financial forecast, there maybe a time for Nike to find alternative sources or increase investment to earn a higher returns. Their goal is to reach 21billion by the fiscal year end of 2011. To reach 21billion, their income must increase up to 16%. By the end of 2007, the Sale of Nike has increase in the past 6 years of an average of 11.46% growth showing a growth in revenue of company's success. ...read more.

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