Lego Project: Selling Price, Production Process ✓ Solved

Lego Project (Selling Price, Production Process, Production Cost

In this Lego Project, the name of the creation will be advertised, marketed as well as sold in the market using the term "Let’s be innovative while playing" as it originates from the Danish word "Leg godt," meaning played well. The term innovative will assist in attracting customers, considering three aspects: giving adequate time to individuals to enjoy while at work, bringing innovation to their minds, and transforming Lego into some structure while being affordable (Chaudron, 2018).

The product costing structure is displayed below. It is essential to note that all direct costs, including direct material costs, direct labor costs, and manufacturing overhead costs, have been taken into consideration based on the given proposal. The three products have been examined to determine their pricing structure accordingly (Mishra, 2017). The selling, distribution, and general administrative expenses incurred on selling and marketing the product are considered to be 15% of the overall production costs.

The direct labor costs are recorded at 60% of the total explicit materials cost, resulting in a calculation of:

  • Lego Plates = 60/100 x 5 = 3.00
  • Lego Bricks = 60/100 x 8 = 4.80
  • Lego Special Pieces = 60/100 x 10 = 6.00

Manufacturing overhead costs are recorded at 45% of the direct labor cost, bringing these totals to:

  • Lego Plates = 45/100 x 3 = 1.35
  • Lego Bricks = 45/100 x 4.8 = 2.16
  • Lego Special Pieces = 45/100 x 6 = 2.70

Total Production Cost is calculated as follows:

  • Total Production Cost = Material Cost + Direct Labor Cost + Manufacturing Overhead Cost
  • Lego Plates = 5.00 + 3.00 + 1.35 = 9.35
  • Lego Bricks = 8.00 + 4.80 + 2.16 = 14.96
  • Lego Special Pieces = 10.00 + 6.00 + 2.70 = 18.70

Given that SG&A costs are assumed for each product, they are added to the Total Production Cost to yield the Total Costs of Sales:

  • Lego Plates = 9.35 + 1.40 = 10.75
  • Lego Bricks = 14.96 + 2.24 = 17.20
  • Lego Special Pieces = 18.70 + 2.81 = 21.51

The selling price of each product is fixed at 12% higher than the overall cost of sales:

  • Lego Plates = 112/100 x 10.75 = 12.04
  • Lego Bricks = 112/100 x 17.20 = 19.27
  • Lego Special Pieces = 112/100 x 21.51 = 24.09

Profit is obtained by subtracting the Total Costs of Sales from the Sale Price:

  • Lego Plates = 12.04 - 10.75 = 1.29
  • Lego Bricks = 19.27 - 17.20 = 2.06
  • Lego Special Pieces = 24.09 - 21.51 = 2.58

The table below indicates the Pricing of the Product:

Costing Structure Lego Plates Lego Bricks Lego Special Pieces
Material cost 5.00 8.00 10.00
Direct Labour cost 3.00 4.80 6.00
Manufacturing overhead cost 1.35 2.16 2.70
Total Production costs 9.35 14.96 18.70
SG&A costs (assumed) 1.40 2.24 2.81
Total costs of sales 10.75 17.20 21.51
Sales Price 12.04 19.27 24.09
Profit 1.29 2.06 2.58

The pricing has been set competitively, as the average price of Lego plates in the market stands at 20-25 cents (Erik & Jan, 2017). This enables the company to maintain profits even when selling fewer pieces, particularly when selling the basic Lego plates (Bygstad & Iden, 2017).

Production Process

The production process for the Lego creation involves several key steps. Initially, the raw materials are sourced and categorized based on size and color. Once sorted, the material is subjected to direct labor for assembly. This labor cost is calculated at 25% of the total direct materials cost. Simultaneously, overhead costs—calculated at 30% of direct labor costs—are incurred throughout the manufacturing phase.

The completed kits are then packaged, and a final inspection ensures no defects are present. Additionally, the marketing strategy emphasizes the innovative spirit of creating Legos, encapsulated in the slogan “Let’s be innovative while playing,” aimed at enhancing consumer engagement (Hofmann & Bosshard, 2017).

Types of Costs

Types of costs associated with manufacturing Lego products include:

  1. Direct Material costs
  2. Direct Labour costs
  3. Production or manufacturing overhead costs
  4. Research and development costs
  5. Packing cost
  6. Forwarding cost including freight and logistics costs
  7. Advertisement and publicity costs
  8. Rental costs of the warehouse
  9. Administration costs of office personnel
  10. IT costs including computer expenses

Sustainability Considerations

In discussing the potential for sustainable Lego products, it’s crucial to analyze the impact of plastic use on the planet. Industry trends suggest a shift toward eco-friendly materials in manufacturing, aiming to reduce environmental footprints. Conversations on creating sustainable Lego products are becoming increasingly relevant among consumers and manufacturers alike (Olcay, 2019).

References

  • Chaudron, R. F. (2018). Bank's interest rate risk and profitability in a prolonged environment of low-interest rates. Journal of Banking & Finance, 89, 94-104. doi: 10.1016/j.jbankfin.2018.01.007
  • Choy, Y. K. (2018). Cost-benefit analysis, values, wellbeing and ethics: An Indigenous worldview analysis. Ecological Economics, 145, 1-9. doi: 10.1016/j.ecolecon.2017.08.005
  • Hofmann, E., & Bosshard, J. (2017). Supply chain management and activity-based costing. International Journal of Physical Distribution & Logistics Management, 47(8). doi:10.1108/ijpdlm- a-2017-0246
  • Mishra, C. S. (2017). Creating and sustaining competitive advantage. Journal of Business Strategy, 38(2), 25-33.
  • Olcay, G. A. (2019). Book review: Energy, complexity and wealth maximization. Technological Forecasting and Social Change, 143. doi: 10.1016/j.techfore.2018.04.030
  • Erik, J., & Jan, L. (2017). The Lego Group: Innovation and quality management. International Business Review, 26(6), 944-955. doi:10.1016/j.ibusrev.2017.03.008
  • Bygstad, B., & Iden, J. (2017). Agile development and the manufacturing environment: Combining design thinking and an agile approach. Journal of Manufacturing Science and Engineering, 139(6).

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