Why Arent Shoes Made in the USA? 

Having just paid $70 for a pair of athletic shoes that were made in China, you wonder why they had to be made in that country. Why werent they made in the United States, where lots of people need good-paying jobs? You also figure that the shoe company must be making a huge profit on each pair it sells. Fortunately, you were able to get a breakdown of the costs for making a pair of $70 athletic shoes:[

                                  

Production labor	$2.75
Materials	9.00
Rent, equipment	3.00
Suppliers operating profit	1.75
Duties	3.00
Shipping	0.50
Cost to the Manufacturer	$20.00
Research and development	0.25
Promotion and advertising	4.00
Sales, distribution, administration	5.00
Shoe companys operating profit	6.25
Cost to the Retailer	$35.50
Retailers Rent	9.00
Personnel	9.50
Other	7.00
Retailers operating profit	9.00
Cost to Consumer	$70.00

 

Youre surprised at a few of these items. First, out of the $70, the profit made by the manufacturer was only $6.25. Second, at $2.75, labor accounted for only about 4 percent of the price you paid. The advertising cost ($4.00) was higher than the labor cost. If labor isnt a very big factor in the cost of the shoes, why are they made in China?

 

Deciding to look further into this puzzle, you discover that the $2.75 labor cost was for two hours of work. Moreover, that $2.75 includes not only the wages paid to the workers, but also labor-related costs, such as food, housing, and medical care.

 

Thats when you begin to wonder. How much would I have to pay for the same shoes if they were made in the United States? Or what if they were made in Mexico? How about Spain? To answer these questions, you need to know the hourly wage rates in these countries. Fortunately, you can get this information by going to the Foreign Labor section of the Bureau of Labor Statistics Web site The table you want is Production Workers: Hourly Compensation Costs in U.S. Dollars. Use the most recent hourly compensation figures.

 

To investigate this issue further, you should do the following:

 

1. Recalculate the cost of producing the shoes in the United States and two other countries of your choice. Because operating profit for the supplier, the shoe company, and the retailer will change as the cost to make the shoe changes, you have decided to determine this profit using the following percentage rates:

 

•  
• Suppliers operating profit: 10 percent of its costs
•  
• Shoe companys operating profit: 20 percent of its costs (including the cost paid to the supplier to make the shoes)
•  
• Retailers operating profit: 15 percent of its costs (including the cost paid to the shoe company)
•  

 

2. Prepare a report that does the following:

 

•  
• Shows the selling price of the shoe for each manufacturing country (the United States and the other two countries you selected)
•  
• Lists any costs other than labor that might change if shoe production was moved to the United States
•  
• Identifies other factors that should be considered when selecting a manufacturing country
•  
• Indicates possible changes to production methods that would make production in the United States less costly
•  

 

3. Finally, draw some conclusions: Do you, as a U.S. citizen, benefit from shoe production in foreign countries? Does the United States benefit overall? Does the world benefit? Should shoe production return to the United States?

 

Answer rating: 100% (QA)

To address the questions and tasks outlined lets first calculate the production costs for making the shoes in the United States and two other countrie... View the full answer