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Question

The question: What factors affect export pricing and costing ?

Answer

The right pricing and the way you provide quotes for your goods or services are both crucial for a successful and ongoing export business. Pricing is differing from costing. Cost is the amount of money that is spent by an exporter or manufacturer to produce a good or a product. On the other hand, when an exporter offers to a customer a particular product at a particular rate that is called price.

In export business price is a crucial element for establish yourself in international market. Price is the main factor which affecting consumer choice. . An exporter has to face competition with domestic producer of his own country and exporting country. So exporters should try to keep their prices down but also consider all the expenses and export benefits. Exporter can still be competitive with higher prices with better delivery package or added advantage. Developing a right pricing strategy is essential for an organization’s success, but it is not same for every exporter. It depends whether the exporter is exporting through canalizing agency or a merchant exporter or manufacturer exporter.


Factors to be considered during pricing of products


  • Actual cost of the export product.
  • International market research
  • Business travel
  • International communications e.g. postage, cable, telephone rates etc.
  • Production of export literature (including translations)
  • Product modifications
  • Packaging and labeling of products
  • Product liability insurance or other insurances
  • Compliance with foreign standards
  • Credit checking
  • Export financing charges
  • Promotional costs
  • After sale services

Export Costing


The computation of the actual cost of producing a product and bringing it to market is the core element in determining if exporting is financially viable. For export costing, cost sheet is prepared for every export product. Cost sheet is a statement, which shows various components of total cost of a product. It classifies and analyses the components of cost of a product


Methods of Costing


Different methods are used for establish the cost of product. This varies by the nature and specifics of each business. There are different principles and procedures for performing the costing. Some of the methods are mentioned below:


  • Unit costing
  • Job costing
  • Contract costing
  • Batch costing
  • Operating costing
  • Process costing
  • Multiple costing
  • Uniform costing

Approaches to Cost Accounting


Marginal costing: Marginal costing entails the allocation of only variable costs, i.e. direct materials, direct labour and other direct expenses, and variable overheads to the production. It does not include the fixed cost of production. This type of costing emphasizes the distinction between fixed and variable costs.


Absorption costing: In absorption costing, the full costs (that is, both fixed and variable costs) are absorbed into production.


Standard costing: In standard costing, a cost is predicted in advance of production, based on predetermined standards under a given set of operating conditions. Standard costs are compared with actual costs periodically, and revised to avoid losses due to outdated costing.


Historical costing: Historical costing, unlike standard costing, uses actual costs, determined after they have been incurred. Almost all organizations use the historical costing system of accounting for costs.


Export quotations for products


Quoted prices of products for international market are different from domestic market. Make sure that both the buyer and the seller are clear about who pays for which costs, and where ownership transfers from seller to buyer, exporters use terms known as Incoterms. Some common Incoterms you may have heard mentioned include FOB and CIF. It is very important that exporters understand the details of each Incoterm they may use and their responsibility for each one.