Ever wonder how much it costs to make something you buy at a store? Here is the approximations used by the manufacturers to calculate how much their product will cost to the consumers:
- Gadgets made of plastics and electronics — The costs of the parts is approximately 1/4 of the original retail price.
- Toys made of plastics and electronics — The costs of the parts is approximately 1/3 of the original retail price.
- Makeup — Pennies!
Even when these factors are taken into account, everything is created with whole-sale parts. So every electronic component, for example, will cost pennies instead of tens of pennies. A resistor, a basic component that goes into electronics, will cost one or two pennies or even sub-penny at the factory, but will cost several or even tens of pennies if you buy them at Radio Shack. Plastics, too, will cost only pennies to make.
The most expensive part of an electronic device, however, is the microchips. They can cost dollars. Take a 2D accelerometer, for example, included with all Wii remotes: It costs $1.50 for most manufacturers that buy them in bulks of 30,000 (10,000 is usually the microchip bulk purchase minimum in the electronics world) or more, but it probably costs Nintendo $1.00 to buy them in bulks of millions. When this wholesale $1.00 chip goes to Toy R Us, the assumption is that the product's cost has gone up by $3.00. Note that much of this increased cost is at Toy R Us who has to stock up its shelves, pay for rent, electricity, its employees, website operating costs, etc. This is problematic for engineers who has to design these products to fit into the consumer pricing sweet spot and still turn profit.
But sometimes the price of the raw parts is not the most difficult part of the manufacturing process. Take Legos, for example. Legos cost almost nothing in raw parts, being made entirely of plastics. However, note how Legos fit together so smoothly and precisely; this is a difficult engineering feat requiring the latest technology in precision engineering, made difficult by the fact that plastics shrink once they are molded and cooled, and by the fact that plastics rubbing against one another will cause friction, too much of which will prevent the pieces from fitting together, but too little of which will prevent the pieces from staying in one piece. This led Lego to invest a tremendous amount of money into precision engineering and precision machines. So much of its investment is not in the raw parts but in the engineering technology.
