Costing Import costing guide: landed cost in 5 steps Import costing can be dangerous, as slight mistakes can have

a disastrous impact on your margin, and you could end up running your import operation at your own costs... So here are 5 tips on how to properly cost an import project:

1. Get your product purchasing cost (PPC) straight? You must make sure of what is and what isn't included in the price you got from your supplier. The first, obvious verification is to ensure that the price actually corresponds, point by point, to your product as specified: make sure that no option is left un-covered and that the quotation is really all-inclusive. Classic mistakes here are: not checking that the packaging or labeling are included, or that additional expenses will be needed such as mould setup. Another important point to agree upon with your supplier is the incoterm included in the quotation. Are you supposed to take property of the goods right from the factory (ex-works pricing), or once the products are loaded onto the boat (FOB pricing)? This obviously greatly impacts your costs - be careful, as a lot of different terms can be used. 2. Calculate your freight cost Here you will need to get quotations from Freight Forwarders . The first thing is for you to decide what freight mode you need. The 3 main options are: sea freight (cheapest, longest mode), air freight (most expensive, quickest mode) and sea & air (a mix of both, less used). Consider your shipment volume and weight as well: air freight can be cost-efficient if you have low quantities or very light products. Once decided on the freight mode, make sure you get the origin and destination addresses correct; most forwarders are able to quote based on a region and not necessarily a specific city. Ask for quotations, and make sure to check all the details; here as well, it is important to check that everything is included. Freight forwarders have to include in their quotation the basic freight cost as well as a number of taxes and fixed charges incurred when dealing with international logistics. You may also ask forwarders to include insurance in the quotation. 3. Estimate duties This is where is becomes tricky. Importing products is subject to custom duties levied by the country where you plan to ship your goods. To get the applicable duty, you need to know what category your products fall in, under the Harmonized Tariff Schedule (HTS or HS codes). Your Forwarder can help; your local custom bureau can help. From one product category to the

other, even for very similar products, duties may vary from 0 to 50% of the imported cost! Remember that Custom duties apply to the total value of your imported goods as they enter the territory (e.g.: purchasing cost + freight + insurance).

4. Be sure to include all costs Make sure you don't forget to include any side cost into your landed cost calculation . Side costs may come from the quality control and testing you will need to implement, the specific logistic operations that will happen once the goods land at destination (ex: palletizing, storage...) or additional costs incurred at the source for your product manufacturing (design, molding...). 5. Add up your margin Once you have a proper and accurate sum of all your costs, it is time to make money! Add up your sales margin, and get your selling price. It is wise to add up an extra few percent to your margin, to cover up for unexpected events such as currency exchange fluctuation, or raw material costs rise. This is also why it is strongly advised to set a validity date to your sales quotation - 30 days is usually enough.

Ex-works price: Ex-works price is the price of the product or products which is quoted by the manufacturer or the supplier. Excise duty: In case of procurement of product or products from a state other than the state of the site, the excise duty is levied on the ex-works price of the equipment. Excise Tax: What a Excise Duty?

An excise tax, sometimes referred to as an excise duty, is a type of tax charged on goods produced within a country (as opposed to custom duties, which are levies on goods from outside the country). An excise tax is a tax on the production or sale of a good. Examples include taxes on gasoline, tobacco products and products with alcohol. These taxes are sometimes given the derogatory term "sin taxes," and they create disincentives for purchasers. Calculation of Taxes and Effects

Excise taxes are typically not expressed in terms of a percentage of sale price; rather, excise duties are levied directly on the producer as a fixed amount of tax per unit of measure (a per pack tax on cigarettes, for example). The producer pays the tax to the government, although ultimately it is the consumer who bears the cost--the cost is included in the price of the product

when the product finally reaches the market. Sometimes an excise tax can account for more than half of the retail value of certain goods. When is Excise Imposed?

There is no strict legal definition for excise taxes, and there is no definition or characteristic by which a good can be evaluated as an excise taxed good. Examples of these myriad goods include alcohol, environmental taxes, gambling, hydrocarbon oil, refunds of duty (tax refunds), and visiting forces. Theoretically speaking, the motive for the excise tax should be to curb the use of goods and services which are harmful to our health or society. However, today these excise taxes seem random at times, and primarily serve to punish under the guise of protecting people' or 'raising needed money. In many countries excise duty is applied using revenue stamps, which a producer can buy bulk from the government and attach to every product to which the excise need to be applied. In India, Manufacturing Units having turnover less than 4 Crores are considered as Small Scale Units for the purpose of Central Excise. They can clear goods worth Rs. 1 Crore duty free subject to the condition that they are not availing Cenvat Credit on inputs or input services. Once you cross turnover of Rs. 1 Crore, you can take cenvat credit on the stock of raw materials, semi finished or finished goods. Thereafter, you have to clear the goods on payment of appropriate duty. This exemption of Rs. 1 Crore is available to almost all items except few i.e tobacco products, automobiles etc.(Notification 8/2003-CE). Once you cross turnover of Rs. 4 Crore in any financial year, you lose your status of SSI and cannot claim SSI benefit for next year. Exports are not counted in turnover. As regards how to calculate turnover, it depends on the items manufactured as the calculation of turnover is to be done according to the items manufactured by you. You do not have any choice but you have to adopt the valuation ordered by the government. There are mainly two valuation methods. One is transaction value under which whatever you charge customer is considered as transaction value or your turnover. Transaction value is valuation done under Section 4 of the Central Excise Act, 1944. So, if the item manufactured by you is falling under Transaction value, you have to calculate your turnover according to this method. Most of the items fall under this category. Another method of calculation is MRP based. If the government has ordered the items manufactured by you to assess on the basis of MRP method under Section 4 A, Turnover under this method is to be calculated is Maximum Retail Prise minus abetment declared by the government. Government has declared more than 100 consumer items to be valued under MRP system vide Notification 2/2006-CE (NT), 11/2006-CE (NT) and 16/2006-CE(NT). Consumer items like Chocolates, biscuits, pan masala, aerated waters, white cement, soap, toothpaste etc. are to be valued on MRP basis.

Educational Cess: Educational cess is basically the extra cess or charge that we are to pay as a charge against educational level to the central government or a state government which may be a state electricity board. The cess that has been charged is applied on the total sum of excise duty and the ex-works price of the equipment. Central Sales Tax (C.S.T): This is one of the most important components under the umbrella of procurement of transmission and substation equipments. Normally the sale tax is 12.45% (approx).

Provision of FORM-C: Those equipments that have been procured under the Form-C provision would have to pay just 2% sales tax instead of paying 12.45%. Form-C is basically issued by the buying company to the seller company. That means if the buying company issues the Form-C to the seller company then 12.45% sales tax is straight away reduced to 2%. Otherwise the purchasing company shall be paying 10% amount as the sales tax depending upon the type of the commodity. Central Sales Tax of 2% against Form-C is applicable on the sum total of ex-works price, excise duty and the educational cess. Value Added Tax (VAT): This is one of the most important components under the umbrella of procurement of transmission and substation equipments in case of procurement of transmission and substation equipments through intrastate transportation. The equipment purchased has some value which has to be paid in form of tax to the government of that particular state in which we are procuring the equipments which is most commonly known as Value Added Tax (VAT). VAT basically varies from product to product. Here in our case I have taken a flat xyz% VAT on the ex-works price of the equipment concerned.

Freight Charges: Freight charges are the charges that are paid by the buying company to either manufacturing company or to their own contractors who are responsible for the transportation of equipments from the manufacturing company to the purchasing company. Freight charges are applicable on the ex-works price of the equipments. Sometimes it includes the loading/unloading charges also. There is no any separate provision of paying the loading/unloading charges in case of intrastate procurement. Freight Insurance: Always there is a possibility of some accident that may happen while the equipments are being transported or there can be a chance of some breakage and fire during the transportation process. For these purposes the buying company makes an insurance of the equipments. Sometimes the manufacturing companies are having their own insurance agencies which do the insurance at the time of procurement of equipments but in that case freight insurance is

included either in the freight charges or separately in the quotation given by the manufacturing companies. Freight insurance is applied on the ex-works price as well as accidental risk coverage is also applied on the ex-works price as insurance for breakage and fire. Octroi Charges Octroi charges refer to the tax levied by the State government on products brought into its Municipal Corporation limit for use, sale, or consumption. Currently this tax is levied as Octroi charges in the states of Maharashtra and Gujarat. Goods on which Octroi Tax is Levied While an exhaustive list of goods on which Octroi tax levied applies is available with the Municipal Corporation of that region, this list usually includes goods and products like food grains, leather goods, cars and other motor vehicles, silk and silk items, gold, silver, imported glass and china products, wooden items, domesticated animals, and other items of value.

Calculation of Octroi Charges

Octroi charges vary between states and are subject to change. The list of charges for each of the goods and products is usually released by the Municipal Corporation. Octroi Charges The moving truck or carrier usually pass through Octroi check posts while passing Municipal limits, and here an Octroi officer will check the goods and tax levied is collected. The packers and movers are responsible for paying the Octroi charges at this post. You can either pay this amount beforehand or ask the packers and movers to bill it along with your total relocation bill. As Octroi charges have been a matter of ambiguity for many residents, and many packers and movers quote unaccounted charges in the name of Octroi tax, it is important to take certain precautions. 1. Before the relocation process with the packers and movers begins, contact necessary authorities to inform yourself thoroughly about Octroi charges, how tax levied is collected and the goods and products for which they apply. This should be duly discussed with the packers and movers beforehand so that all parties are clear as to the legal amount and procedure that applies. 2. At the tax levied collection check post, the Octroi officer is supposed to provide an Octroi certificate authorizing the entry of the goods and products. Ask for this certificate during delivery. 3. Octroi is applicable only for a few states, so ensure claims of Octroi charges are applicable for your relocation. Loading/ unloading charges: This loading and unloading charge is normally paid by the manufacturing companies but sometimes it happens that the suppliers dont count these charges into their quotation and they charge this during final delivery. Packing &Forwarding charge: These charges are also optional and shall be taken into consideration only at the time when a special request is given by the purchaser to the supplier to wrap and unwrap the equipments before forwarding to the site.

Variance: We have studied in quantitative analysis about how to calculate variance. Here also we will do the same calculations for the actual bid price and the price that I have calculated for the company as such.