In the apparel manufacturing
industry, merchandiser prepares a price quotation for garments export
buyer. Different price fixation processes are used to make this price
quotation.
There are three processes for
fixation of export prices which are as below:
- FOB (Free on board)
- C & F (Cost & freight)
- C I F (Cost, insurance & freight)
FOB means “free on board” i.e
exporter does not bear the cost of freight of ship or air. It is buyer
(importer) who himself bears the freight of ship or air
C & F means Cost of freight i.e.
FOB (cost) + Freight = C & F
In the case ship or air freight is carried by the exporter while quoting price, the exporter quotes price a bit higher than FOB. The whole responsibility including the sending of goods to the selected port of the importer is shouldered by the exporter ship or air. Freight may vary from place to place and shippers to shippers.
C I F means Cost insurance &freight. In this case in addition to the bearing of freight the cost of insurance is also borne by the exporter. The exporter, while quoting CIF price, quotes much higher than C & F value i.e.
C & F + Insurance = CIF
Normally we can add 1% to 1-1/2% insurance charge with CIF price. During the fixation of FOB price following notes are to be followed carefully:
C & F means Cost of freight i.e.
FOB (cost) + Freight = C & F
In the case ship or air freight is carried by the exporter while quoting price, the exporter quotes price a bit higher than FOB. The whole responsibility including the sending of goods to the selected port of the importer is shouldered by the exporter ship or air. Freight may vary from place to place and shippers to shippers.
C I F means Cost insurance &freight. In this case in addition to the bearing of freight the cost of insurance is also borne by the exporter. The exporter, while quoting CIF price, quotes much higher than C & F value i.e.
C & F + Insurance = CIF
Normally we can add 1% to 1-1/2% insurance charge with CIF price. During the fixation of FOB price following notes are to be followed carefully:
- Cost of fabric/Doz. Garments (woven/knit) or cost of yarn/doz. Garments (in case of sweater)
- Cost of accessories/doz. Garments.
- C.M (cost of manufacturing)/doz. Garments.
- Cost of transportation from factory to sea port or airport.
- Clearing and forwarding cost.
- Overhead cost.
- Commission/profit
The notes
above are application in case of sending goods aboard on FOB basis. The
following example will clarify how to fix price of a particular commodity:
Price quotation for long sleeve shirts:
Let see the quote a price of one dozen long sleeve shirts:
Price quotation for long sleeve shirts:
Let see the quote a price of one dozen long sleeve shirts:
 |
| Fig: Price quotation for long sleeve shirts for example |
Fabric (30Yds x $0.95) cost/doz
…………………………..……......................… = US $ 28.50
Accessories cost/doz ………………………….....……………….....................… = US $ 06.00
CM (Cost of manufacturing)/doz ………………………………………….....…... = US $ 10.00
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Sub total ……………………………………………………...…….……….....…….. = US $ 44.50
Transport cost from factory to sea port or airport ½% of the above .....................= US $ 0.23
Clearing and forwarding cost 2% ………………………………………...……… = US $ 0.29
Overhead cost ½% ………………………………………………..……………… = US $ 0.23
---------------------------------------------------------------------------------------------------------------------
Total real net cost price ………………………………………….……………….. = US $ 45.86/doz
Commission 10% …………………………………………..…………………….. = US $ 4.60/doz
------------------------------------------------------------------------------------------------------------------------
Net FOB price …………………………………………………...……………….. = US $ 50.46/doz
Freight (about 4%) is ……………………………………………….…………….. = US $ 2.00
-------------------------------------------------------------------------------------------------------------------------
Net C & F price is ………………………………………………..……………….. = US $ 52.46/doz
Insurance cost (1-1/2%) is ………………………………………………..……….. = US $ 0.79
-----------------------------------------------------------------------------------------------------------------------
Accessories cost/doz ………………………….....……………….....................… = US $ 06.00
CM (Cost of manufacturing)/doz ………………………………………….....…... = US $ 10.00
----------------------------------------------------------------------------------------------------------------------
Sub total ……………………………………………………...…….……….....…….. = US $ 44.50
Transport cost from factory to sea port or airport ½% of the above .....................= US $ 0.23
Clearing and forwarding cost 2% ………………………………………...……… = US $ 0.29
Overhead cost ½% ………………………………………………..……………… = US $ 0.23
---------------------------------------------------------------------------------------------------------------------
Total real net cost price ………………………………………….……………….. = US $ 45.86/doz
Commission 10% …………………………………………..…………………….. = US $ 4.60/doz
------------------------------------------------------------------------------------------------------------------------
Net FOB price …………………………………………………...……………….. = US $ 50.46/doz
Freight (about 4%) is ……………………………………………….…………….. = US $ 2.00
-------------------------------------------------------------------------------------------------------------------------
Net C & F price is ………………………………………………..……………….. = US $ 52.46/doz
Insurance cost (1-1/2%) is ………………………………………………..……….. = US $ 0.79
-----------------------------------------------------------------------------------------------------------------------
Net C I F price is …………………………………………………..………………. = US $ 53.25/doz
