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From the following information, calculate EXW quotation for Annapurna Food Exports Ltd, who is consigning 500,000 packets of potato chips to Al Minaz Traders in Saudi Arabia. Various costs are listed below:
Cost of acquiring potatoes - Rs. 15,00,000
Cost of Palm Oil - Rs. 5,00,000
Cost of Processing (including wages) - Rs. 22,00,000
Cost of Packaging and Marking - Rs. 3,00,000
Cost of FSSAI and HALAL Certification - Rs. 1,00,000
Cost of Inland Freight - Rs. 12,00,000
Cost of Loading into Containers - Rs. 8,00,000
Cost of Freight for Sakina Maritime Shipping Co - Rs. 9,00,000
DBK
Profit margin is Rs. 4,00,000 per consignment.
SOLUTION:
As the quotation quoted by Annapurna Food Exports Ltd is EXW, it will include only manufacturing cost and packing.
EXW Cost = Cost of acquiring potatoes + Cost of Palm Oil + Cost of Processing (including wages) + Cost of Packaging and Marking + Cost of FSSAI and HALAL Certification + Profit Margin - Export Incentives
= Rs. 15,00,000 + Rs. 5,00,000 + Rs. 22,00,000 + Rs. 3,00,000 + Rs. 1,00,000 + Rs. 4,00,000 - Rs. 0
= Rs. 50,00,000/-
As per the above calculation, Annapurna Food Exports Ltd will quote Rs. 50,00,000/- for the Potato Chips export consignment.
All other cost will be borne by the importer.
2. Crifton Pvt. Ltd., an exporter based in Panvel, India, is shipping 10,000 units of electronic components to Alpha Tech Ltd., an importer based in Turkey, under a Delivery Duty Paid (DDP) contract. The following costs are associated with the export:
Manufacturing Cost per Unit: ₹ 500
Trade Margin for Crifton Pvt. Ltd: 20% of Total Manufacturing Cost
Total Packing Cost: ₹10,000
Inland Transportation: ₹12,000
Indian Port Charges: ₹8,000
Cost for Loading goods into Al Marina Cargo vessel: ₹18,000
Freight Charges (Mumbai to Turkey Port): ₹65,000
Marine Insurance Cost: ₹12,000
Customs and Import Duty in Turkey: 20% of the total FOB value
Inland Transportation for delivery in Turkey: ₹180,000
Evaluate the total DDP price per unit for the shipment.
SOLUTION:
As the quotation quoted by Crifton Pvt Ltd is DDP, it will include all the expenses incurred by them till final delivery of the consignment to the importer (including profit margin and Custom Duty).
DDP Cost = Manufacturing Cost + Trade Margin for Crifton Pvt. Ltd (20% of Total Manufacturing Cost) + Total Packing Cost + Inland Transportation Cost + Indian Port Charges + Cost for Loading goods into Al Marina Cargo vessel + Freight Charges (Mumbai to Turkey Port) + Marine Insurance Cost + Customs and Import Duty in Turkey + Inland Transportation for delivery in Turkey - Incentives (if any)
= ₹50,00,000 (10,000 units X ₹500) + ₹10,00,000 (50,00,000 X 20%) + ₹10,000 + ₹12,000 + ₹8,000 + ₹18,000 + ₹65,000 + ₹12,000 + ₹12,09,600 (FOB ₹60,48,000 X 20%) + ₹180,000 - ₹0 (Incentives)
= ₹75,14,600/-
As per the above calculation, Crifton Pvt Ltd will quote ₹75,14,600/- for the export consignment.
Per Unit Cost = ₹75,14,600 / 10,000 units = ₹751.46/-
Note: Custom Duty @ 20% is calculated on FOB Cost which includes all expenses upto loading goods into the ship. Here, manufacturing cost, profit margin, packing cost, inland transportation, India port charges and goods loading charges have been considered in calculating the FOB which arrives at ₹60,48,000. Further, 20% of ₹60,48,000 gives us ₹12,09,600/-
3. From the following information, find out minimum FOB price to be quoted on no profit or no loss basis. What will be the profit or loss is a price of Rs. 31,000 FOB is quoted. Ex factory cost Rs. 32,000, expenses up to boarding into the ship Rs. 6,000, DBK 5% of FOB price.
SOLUTION:
Remember, while calculating quotation prices, the seller obligation points should be purely considered. Expenses incurred by the exporter for sending the goods to the importer should form a part of the quotation. An exporter has to recover (from the importer) all that he has spent to send the goods to the importer.
Part I - Calculation of FOB price at zero profit zero loss.
FORMULA
"FOB price = Cost of goods + Expenses up to boarding goods into the ship + Profit Margin - Export Incentives"
Let the FOB price be 'x'
On applying the above formula, we get
x = 32,000 + 6,000 + Zero - 5% of x
x + 0.05x = 38,000
1.05x = 38,000
x = 38,000 / 1.05
x = 36,190
Therefore, minimum FOB price that can be quoted at no profit no loss is Rs. 36,190/-
Part II - Calculation of profit or loss at an FOB price of Rs. 31,000/-
Let profit / loss be 'x'
FOB price = Cost of goods + Expenses up to boarding goods into the ship + Profit - Export Incentives
31,000 = 32,000 + 6,000 + x - (5% of 31,000)
31,000 = 32,000 + 6,000 + x - 1,550
x = 5,450
Therefore, if FOB quotation is 31,000/-, the exporter will have to incur a loss of Rs. 5,450/-
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