EN Bridget Costing and Pricing

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COSTING AND PRICING

INSERT PHOTO(S) HERE

RELATED TO THE TOPIC

Presented by Bridget Kyerematen-Darko,Aid to Artisans Ghana (ATAG)

in Abidjan, Cote Ivoire, on 4 July, 2012

[email protected] Photo from www.mint.com
mailto:[email protected]:[email protected]


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Finding the Right PriceWhat are the steps?

What kind of factors should enterprises account for when calculating the price of their products inforeign market?

What is the right price?


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Benefits of Good Production Planning

Price can affect: Market share Competitors Profits Use of production capacity Image of the product or enterprise

Setting a price to influence one of the above on purpose isconsidered setting Pricing Objectives (not to be confused with theproduction objective named Price) Price can contribute to achieving Marketing objectives


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Pricing MethodsCost-oriented pricing (cost plus) Full cost Direct cost Marginal cost Break-even

Market-oriented pricing

Demand-oriented pricing Competition-oriented pricing Pricing guidelines


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Information Requirements for ExportPricing

Information is key to pricing and export pricingInformation requirementsCosts (factory, transport, selling and distribution, marketing, administration)Selected foreign market (size, nature, prevailing prices)

Factors to consider (abroad):Market characteristicsGovernment activities

Factors to consider (at home):Production and costsRevenue and profits


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Elements of Production CostsThere are 3 elements:

Direct materials

Direct labour

Manufacturing overheads

NB: The distinction between direct and indirect costs depends on

the cost objective


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Elements of Production Contd Direct Materials: Consist of all those materials that can be physically identified with

a specific product. Eg. Wood that is used for a carving can easily be identified as part

of the product.Direct Labour: Labour costs that can be specifically traced to or identified with a

particular product. Eg. Wages of carvers hired

Production Overhead: It consists of all production costs other than direct materials, direct

labour and direct expenses. ie all indirect production costs. Eg. Rent, depreciation, electricity etc.


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Elements of Production Contd Eg. Production of 1,000 drums

Direct Materials $ 1,500Direct Labour 750Direct Expenses 100Prime Cost 2,350Manufacturing Overhead 100Total Manufacturing Cost 2,450Unit cost of one drum $2.45


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Export Price StructureThe export price structure provides a detailed picture of all cost elements from the factory gate to the consumer.Understanding its elements is critical to export pricingand commercial success.

The Export Price Structure consists of approximately 18elements


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Producer sells to

exporter $10

Exporter adds feesand costs,

sells toimporter

$15

Importer pays

transport,overhead

and customs,Sells to retail

shop. 3X$45

Retail Shopsells to

consumer 2X sells at

$90

Consumer pays $90


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EXW

Export Price Structure$ 10

FOB $ 15

Wholesale $ 30

Retail $ 45

3-9

10-17

18

Refer to the previous slide for explanation of increased price. Price Points

are usually a factor of 3 to 6 (FOB to Retail)


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Money

Terms of Delivery legally binding the exporter and

importer with four vital aspectsof the transaction

Which costs are paid by eachparty?What documents will theexporter obtain and at whoseexpense?When will the risks (to whichthe goods are exposed) passfrom exporter to importer?Where and when will thegoods be delivered?

Incoterms 2000 - Practical andeconomical tools usedworldwide to facilitateinternational trade proceduresthrough standardized practicesand clear determination of transfer points of all risks

Validity of the quotationExpiration date

There are three main factors which should be considered whenformulating export price quotations


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AcknowledgementSome of the material was adapted from

ACCESS! FOR AFRICAN BUSINESS WOMEN ININTERNATIONAL TRADE


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Medamosa: Thank you!Contact email: [email protected]

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