Lesson 20 — Activity 2: Why Do Those Shoes Cost So Much?

As you just learned, large companies, or multinational corporations, can cut their costs considerably by having businesses in other countries make their products.

In this activity, you will learn about the costs associated with producing products.

Let's look at a company that produces runners.

 

Source: Photo by Melvin Buezo from Pexels

 

 
When the company sells a pair of runners to a store, only about 25% of the cost was used to make the shoe. So, if the store buys the shoes for $20.00, only $5.00 of this was used to make the shoes. Of course, the store has to make money too, so it will usually increase the price by 50 percent or more. Now the $20.00 shoes cost $40.00. The information below gives you a more detailed look at where your money really goes.

You may not be sure about all the terms used above; here is what they mean.

material costs — the cost for the things used to make the shoes, like leather, vinyl, glue, and plastic

factory costs — the amount it costs to run the factory, paying for things like power, equipment, and maintenance

profit — the amount of money the factory or company makes

branding costs — the amount spent to make sure people recognize and want the brand's name

advertising costs — the amount spent on commercials and advertisements

research and development costs — money spent to design, develop, and test the shoes

Self-check!