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Purchasing Practices

A. Market survey

This involves the study of prices of commodities. This is done when the researcher carries out a survey by visiting a number of shops or markets. The researcher collects the prices of goods from different places and at different periods of the year.

Uses of a market survey

1. During a market survey, the researcher compares qualities and quantities of different brands of particular goods; for example, detergents like Omo, Elephant, Jet and Apollo.
2. It also shows the period of the year, or season, when specific items are abundant and cheaper.
3. It helps to reveal the places or shops where specific goods are cheaper.

B. Bulk buying

Bulk buying is the process of buying a commodity in large quantities. It is better to buy in bulk as a consumer; this saves money. Where an individual cannot conveniently buy in large quantities, for example, bags of beans, a group of three housewives can come together and buy the bags of beans, which can then be shared equally. Poor storage also may affect bulk buying.

C. Hire purchase
This is an agreement of hiring goods for a specific period, with the hirer having the option to purchase the goods at the end, usually for a nominal sum of money. Goods are hired, and not bought until they are fully paid for. Thus, when they are not yet fully paid for, they remain the property of the seller.

Points to consider before buying goods on hire purchase

1. Find out if the article is really necessary.
2. How long the payment will last.
3. If it is possible to continue to pay by instalment.
4. Find out if it will be wiser to save the money first and buy the article later.

Advantages of hire purchase

1. For the seller, the volume of sales can be increased because he/she sells more by allowing customers to pay by installment.
2. For the consumer, that is the buyer, it is possible to obtain goods on payment of only a small deposit.

Disadvantages of hire purchase

1. Buyers may be tempted to buy more than they can afford.
2. If the period of payment is long, the goods may be worn out before they are fully paid for.
3. The interest charges on hire purchase are usually high and the total amount eventually paid is much more than the cash price, so the consumer spends more through hire purchase.
4. The seller runs the risk of non-payment.

D. Cost analysis

In order to determine the price which a consumer pays for a given commodity, the manufacturer has to carry out an analysis of the cost of production of that commodity.

i. Cost of materials  –
These materials include raw materials, spares and components, consumables, etc. For example, fabrics used for dressmaking in clothing industries and timber for furniture-making.

ii. Cost of labour
Labour cost can be direct; for example, the salary paid to workers. All labour expended in the production of a commodity is also analysed and its cost added to make up the price that consumers are expected to pay for a given commodity.

iii. Manufacturing overhead costs
These are all the expenses incurred in all the operations and processes of manufacturing a product. Thus, it entails starting from the receipt of raw materials and ending with the storing of the finished goods in stores, aside from the direct costs of materials and direct labour. Examples of overhead costs are depreciation on plants and machinery, depreciation on repairs on building and depreciation on electrical equipment. Other examples are sewing machines, insurance, charges on current assets like store, finished products, etc.;
repair and maintenance of fixed assets, etc..

E. Loans
Individuals, cooperative societies, businessmen and even firms can obtain capital for running their activities through loans from various sources. These loans are usually classified into three major types.

i. Short-term loans:
These are loans to be paid back within a few months or at the extreme, within one or two years. Such loans can be used for financing a firm’s fluctuating requirements of working capital. Short-term loans are mostly provided by commercial banks and associated companies.

ii. Medium-term loans:
These are loans to be repaid normally after about three years.

iii. Long-term loans:
These are loans that should be repaid after about ten years and above.