EXPORT COSTING

• Costing is what an exporter pay for manufacturing

the same product.
• Costing is any system for assigning costs to an
element of a business.
• Preshipment cost – estimating what cost will be
• Post shipment cost – calculating actual cost
• Basically cost accountant job.
• It is advisable to prepare an export costing sheet for
every export product.
 EXPORT COSTING
1. Ex- Factory cost

Ex- factory cost of a product includes all the cost incurred on

till it leaves the factory premises. Ex factory cost= Direct cost+

Indirect cost +Factory overheads

2. Sales and distribution overheads

The cost of transportation to the warehouse, salaries in the

export department sales personnel, sales promotion expenses.

This cost is fixed and changes with the volume of sales.

 Ex-Factory Cost
1.Direct cost:
Its also known as primary cost. A direct cost is a price that can be directly tied to the
production of specific goods or services.

Eg.Ford motor company – steel & bolts are needed for production of car.

Direct Labour ●
● Directly related to the production product raw material
stage to finished product.
cost ●
● Wages

All the materials that form part of the products

Direct Material
●
●

including raw materials components ,bought out items.

Expenditure that can be directly with production of goods

Direct Expenses
●
●

which increase proportionally with volume of production

 Ex-Factory Cost
2.In Direct cost:
A In direct cost is a price that can be in directly tied to the
production of specific goods or services.
Eg: Plant maintenance and administration expenses

In Direct Labour ●
Salaries of supporting services like plant maintenance,
quality control which are not directly related to production
cost but essential for production.

In Direct ●
Cost of lubricants, oils,tape,cleaning supplies, consumable
items used in the manufacturing of the product.
Material
In Direct ●
Lighting charges and heating charges
Expenses
 Ex-Factory Cost
Fixed overhead cost:
These include all other costs not covered by indirect and direct costs.
Interest on capital,depreciation,salaries for office staffs, welfare services .
 Direct cost vary with production volume and every additional unit
produced add to the total costs
 Taxes and insurance

Eg: Company ABC rent office space for 5000 month . This is fixed overhead

cost that must be paid .Building would be a fixed cost since it does not

increase or decrease with changes in sales volume .

 SALES AND DISTRIBUTION
OVERHEADS
These cover all the costs incurred from the time the product leaves the factory

premises . The cost of transportation to the warehouse, salaries in the export

department sales personnel, sales promotion expenses. This cost is fixed and

changes with the volume of sales.

Export packing cost
Export handling cost
Sea fright/airfright charges
Insurance
Commission payable to agents abroad
 SALES AND DISTRIBUTION
OVERHEADS
Export packing cost: Goods meant for export require special packaging to

withstand rough handling in the process of loading and unloading at ports as also

during long sea voyages.

Export handling cost: Material handling costs should also include warehouse

and other storage expenses

Sea fright/airfright charges: Freight charges are the costs entailed in

transporting goods from one geographical location to another. They can include

packaging and insurance costs in addition to various transportation charges. Some

types of freight charges are incurred by the seller and some are incurred by the
 SALES AND DISTRIBUTION
OVERHEADS
Insurance: goods are export usually insured against damage,

deterioration and loss during transit.

Commission payable to agents abroad: where the sales

promotion of product is sought to be to be achieved by

appointment agent in the importing country whose function is to

promote its sale predetermined commission is required to be paid

to the agent on the sale price of the product.

 EXPORT PRICING VS COSTING

PRICING COSTING
Price is what we offer to Cost is the price that we
the customer pay / incur for the product.
Price includes our profit Cost only gives the
margin expenses we have incurred.
Pricing is the Marketing Costing is the Cost
man’s privilege Accountant’s privilege
 EXPORT PRICING
• Price is what an exporter offer to a customer
on particular products.
•  Export pricing is the most important factor in
for promoting export and facing international
trade competition.
• Marketing responsibility.
 PRICING OBJECTIVES
Short term pricing objectives:
• To meet competition
• To use excess production capacity
• To recover cash rapidly
• To penetrate the market
•  It decides the success and failure of export
efforts.
• Export pricing builds goodwill in the market
 PRICING OBJECTIVES
Long term pricing objectives:
• Increase the market share
• Helps to achieve organizational objectives
• Increases profitability
• Helps to skim the creame.
• Helps to develop brand loyalty.
• Helps to face competition
• Reflects the quality of product
FACTORS AFFECTING PRICING
• Costs
• Competition
• Elastic of demand
• Government policies
• Export incentive assistance
• Frequency of purchase
• Product differentiation and brand image
• Miscellaneous factors
 FORMS OF EXPORT PRICING
• Skimming Pricing Strategy
• Penetration Pricing Strategy
• Transfer pricing
• Marginal cost pricing
• Market oriented pricing
• Competitors pricing
• Differential pricing
• Product life cycle pricing
 FORMS OF EXPORT PRICING
• Skimming Pricing Strategy
Exporter charges the high price initially in order to recover
the cost incurred on initial promotional expenditure,
research and development. Exporter may reduce gradually
reduce the price in order to increase the market share.
Eg:Apple ipod
New product ,new market
New way of listening music
 FORMS OF EXPORT PRICING
• Penetration Pricing Strategy
Exporter charges low price intially sometimes even
below the cost,inorder to get hold the market and drive
away competitors. Also referred dumping. Its suitable
for the items mass consumption .
Eg. Dell
 FORMS OF EXPORT PRICING
SKIMMING PRICING
Very high price intially
To earn high profit
To recover the cost R&D
Heavy advertising and sales promotion are Advertising and promotion costs are
required to promote costly products
Fashionable items
Innovative products
Monopolistic items
Short term strategy
Exporter mainly target Rich customers
High price demand may be low and so the
exporter may not be able to large scale
production.
PENETRATION PRICING
Very low price intially
To capture the market
To sell slow moving items
comparatively lower due to low price
Items of mass consumption
Items having many substitutes
Perishable items
Long term strategy
The exporter sells product of mass
consumption meant for every one.
Due to low price demand and sales are
higher in which in turn generate
economies of large scale production and
distribution
 FORMS OF EXPORT PRICING
• Transfer pricing:
Pricing of goods transferred from subsidiary to another or
parent company. Transfer pricing decision affected by factor
such as diffences in tax and tariff rates , forex restrictions or
import restrictions.
• Market oriented pricing:
Its very flexible realistic method arriving at price as it takes
into consideration the change the market condition for taking
appropriate pricing decision. The price charged may be
higher when demand conditions.
what the traffic will bear the method.
 FORMS OF EXPORT PRICING
• Competitor pricing :
Competitors in the market while arriving at price and analyze price
trends in the market.
• Differential pricing:
Condition differ from one market to another and the price of the
product cannot be same in every market. The main reason for
differential pricing in different expenses and different in cost charged,
level of competition, demand condition.
eg. Boeing aircraft company sells differentiated jetliner ,charge of price
for its planes US,Europe
 PRODUCT LIFE CYCLE PRICING
1.Introduction – Try may product Eg. Maruthi 800
2.Growth- Buy my product
3.Maturity –More price deduction becomes necessary
4.Decline- Product may be reintroduced with certain modification
 BREAK EVEN ANALYSIS
• It is the technique commonly used in costing to analyze the cost
volume ,profit relationship.
• Break even technique is a financial tool which help to determine
what stage your company or a new service or a product ,will be
profitable
• The point or the level at which sales break even is called “ Break
Even Point “
• No profit no loss
 EXPORT PRICING DECISIONS

Micro level:
1.Cost of production: Prime cost, factory
overheads,administartion overheads.
2.Cost of distribution:
Packing,selling,transportation including
insurance, distribution cost at the importing
3.Cost of marketing support:
Advertising and sales
 EXPORT PRICING DECISIONS
General information about export firm:
•Production capacity of the firm
•Domestic price structure
•Proportion at present exported
•Proportion of total production supplied in the home market.
Other information:
•Taxes and export incentives
•Floor price and ceiling price regulation
•Product guarantee
•Installation and after service requirements
•Percentage of incidence rejects
 EXPORT PRICING DECISIONS

Macro level:
• Information about the product:
• Information about demand
• Information about Market
• Information about Competitors
• Charges levies in the foreign market
INFORMATION REQUIRED FOR QUTATI

• Currency
• Discounts – Trade discount,Qty discount,cash
discount
• Export price whether FOB or CIF
• Terms of payment
• Export packing
• Commission
• Shipping details and insurance
• Date of delivery and penalities
 INDIAN BRAND IN FOREIGN MARKET
Cafe Coffee Day (CCD)
• There are more than 1530 cafe outlets in India alone
• The chain has now expanded internationally to countries like
Austria, Malaysia, Egypt, Czech Republic, etc.
Tata is one of the most well known Indian brands in the world. The brand finds
its presence in multiple industries including chemicals, consumer products,
energy, engineering, IT Systems, Services like TIS, telecommunications and
consultancy, steel industry, etc.
SBI is the largest and the most popular Indian Bank in the
world. The government-owned bank has more than 14,000
branches and 191 foreign offices in around 36 countries
Zomato is a popular Indian food startup which was founded in 2008 and is
headquartered in Gurugram, Haryana. It has now gradually expanded to 23
different countries with more than a million restaurants listed on the platform
The largest Indian smartphones brands.