Introduction
Export cost accounting is an essential part of the financial management process. It provides managers, business owners and assessors with an understanding of the cost of deliverying goods and services to foreign markets, and ensures that all external costs for imports and exports are correctly included in the determined sale price. This cost analysis helps organizations identify ways to reduce costs and increase profitability.
Methods of Estimating Export Costs
The cost of exporting goods and services varies from organization to organization depending on the size of the shipment, the nature of the goods being shipped and the distance the goods are travelling. Export cost accounts are constructed on the basis of the following different cost categories:
• Freight and insurance- Costs associated with transporting goods to a foreign destination, and the associated insurance premiums that cover potential losses due to theft or damage.
• Customs and border compliance- Costs related to the organization meeting the compliance requirements of customs and border agencies in the exporting and importing countries.
• Documentation costs- Fees associated with preparing documentation such as export laws, country-specific declaration forms, export licenses, import permits and customs clearance documents.
• Ancillary costs- Costs associated with dealing with brokers, agents, middlemen and other third parties, such as legal fees and bribery cases.
• Currency exchange-Costs associated with converting a currency for deliveries or payments to foreign markets.
• Compliance costs- Costs associated with compliance with legislations relating to export and import activities.
• Taxation- Costs related to taxes, duties and other levies due on goods crossing borders.
• Risk management costs- Costs associated with managing risks relating to export activities.
Advantages and Disadvantages of Export Cost Accounting
This type of accounting can provide useful insight into an organizations export costs and enable them to make more informed decisions when dealing with foreign markets. Generally, export cost accounting will result in lower costs, improved competitiveness and increased profits for businesses that export goods or services.
This type of accounting does however have its disadvantages. It can require a significant amount of time and effort to accurately calculate the cost of exporting goods and services, and organizations can incur large financial losses if incorrect cost calculations are made. In addition, the approach is burdensome for smaller organizations or those that do not have the resources or expertise to accurately manage export costs.
Conclusion
Export cost accounting plays an important role in organizations that deal with foreign markets. Accurately calculating the cost of exporting goods and services can result in lower costs, improved competitiveness and increased profits. However, it is important to note that this type of accounting can require a significant amount of time and effort, and incorrect cost calculations can result in large financial losses. Therefore, organizations should take the necessary steps to ensure they have the appropriate resources and expertise to accurately manage export costs.
