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Export Costing

Export Costing

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Published by Vasant Kothari

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Published by: Vasant Kothari on May 12, 2011
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01/11/2014

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 AppArel exports
32
 APPAREL April 2011
Costing
Export
After a detailed evaluation of the differencebetween export costing and pricing,Vasant Kothari gives an insight into the export price calculationmethods. These nuances are likely to benefit apparelmanufacturers/exporters in the long run.
n the apparel industry, the most popular method to calculate theexport price o any product is theCost-Plus Method.Te Cost-Plus Method o calculationrequires a costing sheet so that itenables the exporter or manuacturerto check that every expense has beencovered while arriving at the selling price. It also enables him to provide adetailed record o the terms that havebeen quoted to the oreign buyer.
 
APPAREL April 2011
 
33
•Packing–ecostofpacking
or overseas shipment will vary according to the product,destination and means o transportation. Te manuacturermust include reasonable provision or this.
•Labels–esemayhavetobe
 printed in a oreign language, perhaps containing inormation notincluded in the labels used withinthe exporter's country. Also, romthe sales point o view, they mustbe suitable to the oreign consumer.Te selling price o the product mustinclude sucient allowance orthese extra labeling costs.
The iTems covered by TheexporT cosTing sheeT are:
•Unitcostofproduct–estarting
 point in export pricing is the production cost per unit o the product. Tis would be the variablecost plus xed cost or overhead.In case o a garment, normally itis done or 1.03 to 1.05 pieces by considering 3-5% wastages.
•Prot–Oncetheproductcostis
calculated, the exporter needsto include prot margin into the
Margin willdepend on costs,export objectives,the circuMstancesprevailing in thetarget Market andintended pricingstrategy.
calculation. Margin will dependon costs, export objectives, thecircumstances prevailing in thetarget market and intended pricingstrategy. However, an exportercan also add extra allowance or prot, in order to cover the risk involved in selling abroad. In today’scompetitive world, the garmentindustry takes a prot o 6-10%.
•Agent'scommissionabroad–
 Tis is usually calculated on a percentage basis. In case o agarment, this could be the BuyingHouse commission.
•Marking–Asmallcostisinvolvedin
stenciling an identication mark oneach package or export and shouldbe considered while calculating thecosting or export.
•Pre-ShipmentInspection–Inthe
garment industry, it is mandatory that the goods must be inspectedbeore they leave the exporter's premises. Buyers could ask or anindependent third-party inspectiontoo. In certain cases, the exporterneeds to include these inspectionees as part o export costs.
•LoadingCharges–Oncethegoods
are packed and inspected or export,the next step is to load the goodsonto the means o transportationthat is to be used to move thegoods to the airport or harbour.In the case o Ex Works, the selleris only responsible or placing thecargo at the buyer's disposal at aconvenient point in the actory or warehouse. I the seller is loading
 
 AppArel exports
34
 APPAREL April 2011
the goods, then he needs to cost theloading o the goods onto the truck to be supplied by the buyer as part o the Ex Works cost.
•Freighttoseaboard–ecostof
transporting the goods rom theinland town or city to the seaport orshipment abroad.
•Unloadingcharge–ereisa
charge or unloading goods romrailway cars or trucks. Tis cost will be incurred when the goodsarrive at the seaport. Tere may also be unloading and loading costsincurred i goods are moved romone transport medium (e.g. truck) toanother (e.g. rail) somewhere alongthe inland reight component andsuch costs must also be taken intoconsideration.
•Terminals–esearehandling,
 wharage and harbour dues thatmust be paid by the exporter to the wharage company. Te exporterneeds to account or his ees in
thecostingexercise.Similarcosts
are incurred at airports but theseservices are provided by the airlinein question and are included in theair reight costs and are usually notaccounted separately.
•Longorheavyloadcharge–Ifthe
shipment is exceptionally long orheavy, extra charge may be incurred.
•Consulardocuments–ese
documents can be quite expensive, particularly in the case o exports to
LatinAmericancountries.Initially,the
exporter may wish to quote a pricein dollars plus the cost o consulardocuments to the oreign buyer. I not,he must make adequate provision inthe price to cover their cost.
•Othercharges–Herespaceisleft
or the inclusion o unexpectedadditional expenses such as the costo overseas telegrams or telephonecalls or extra storage charges.
•Oceanfreight–isinvolvesthecost
o shipping the goods by sea to theoreign port. Te cost may be quotedby the ocean carrier in local currency 
orUSdollars.•Freightforwarder'sfee-Iftheexporterusestheservicesof‘FreightForwarder’fordocumentationand
book the shipping space required, anallowance must be made or the eeinvolved. Te amount o these eescan be obtained in advance rom theorwarder or shipping agent.
•Financingcharges–Untilpayment
is received, the export rm will have part o its working capital tied up inexport merchandise. Even i no creditis given, it will have to wait until thegoods are shipped or delivered beore payment is made. I credit is given tothe oreign customer, it may have to wait an additional 60, 90 or 180 daysor payment. Te selling price shouldinclude an amount to cover the costo this working capital.
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