Introduction

Standard costing in the context of international shipments involves establishing predetermined costs for various components of the shipping process. These costs serve as benchmarks against which actual costs can be compared, allowing companies to analyze and manage their international shipping expenses more effectively.

It’s important to note that international shipping involves various uncertainties, such as geopolitical factors, weather conditions, and regulatory changes, which may impact actual costs. Regularly reviewing and updating standard costs helps companies adapt to changing circumstances and make informed decisions about their international shipping operations. Consultation with logistics and international trade experts is recommended for accurate standard costing in this context.

The detailed international shipment standard costing procedure involves establishing predetermined costs for various elements of the shipping process.

Below is a step-by-step guide for implementing standard costing in international shipments:

Step 1. Define the Scope

Clearly define the scope of your international shipment standard costing. Identify the specific components and processes that will be included in your cost analysis.

Step 2. Identify Cost Components

Here are key elements to consider when applying standard costing to international shipments:

1. Freight Costs:

Ocean Freight: Establish standard costs per container or unit for shipping goods via ocean freight. Consider factors such as shipping lanes, distance, and the type of cargo.

Air/Ground Freight: Determine standard costs for air/ground freight based on weight, volume, and destination.

2. Customs Duties and Taxes:

Import Duties and Taxes: Establish standard costs for customs duties, tariffs, and taxes that may be incurred upon entry into the destination country.

3. Insurance Costs:

Cargo Insurance: Determine standard costs for insuring the goods during transit. This cost is usually calculated as a percentage of the cargo’s value.

4. Exchange Rate Fluctuations:

Currency Conversion Costs: If transactions involve multiple currencies, factor in potential exchange rate fluctuations when determining standard costs.

5. Transportation to and from Ports:

Inland Transportation: Include standard costs for transporting goods to and from the ports of departure and arrival.

Step 3. Gather Historical Data

Collect historical data on past international shipments to understand the actual costs incurred. This data will serve as a basis for establishing standard costs.

Step 4. Determine Unit Measures

Define the unit measures for each cost component.

For example:

• Ocean freight costs per unit
• Inland freight cost per kilometer
• Customs duties as a percentage of the product value
• Insurance costs as a percentage of the cargo value

Step 5. Calculate Average Costs

Calculate the average costs for each cost component based on historical data. This provides a starting point for establishing standard costs.

• Ocean freight costs per unit = Container cost/quantities in container
• Inland freight cost per kilometer = Total inland freight cost/kilometers travelled
• Customs duties per product = Duty percentage × product value
• Insurance costs per product = Insurance policy costs × (product value/Insurance coverage)

Step 6. Consider Contingencies and Miscellaneous

Contingency Costs:

Storage Fees: Consider costs for storing goods in warehouses, especially if there are delays in transportation or customs clearance.

Contingency Fund: Consider adding a contingency factor to account for unforeseen expenses or changes in the shipping process.

Miscellaneous Costs:

Special Handling and Port Charges: Consider costs for port handling charges and fees associated with loading and unloading cargo at ports of departure and arrival.

Demurrage charges: Consider fees imposed by shipping lines, ports, or terminal operators for the delay in clearing imported goods or returning containers after the agreed-upon free time has expired.

Document Preparation: Consider costs for preparing shipping documents, including bills of lading, certificates of origin, and other required paperwork.

Compliance Costs: Consider costs associated with compliance with international trade regulations and standards.

7. Establish Standard Costs:

Set predetermined standard costs for each cost component. These standards can be based on the average costs calculated earlier, adjusted for contingencies and any expected changes in the market or regulatory environment.

1). Create Standard Cost Sheets: Develop standard cost sheets that detail the standard costs for each cost component.

2). Establish Standard Cost Accounts: Set up standard cost accounts in the general ledger to track standard costs separately from actual costs.

3). Implement Standard Costs: Incorporate the established standard costs into accounting systems.

Step 8. Regular Monitoring and Adjustment

Regularly monitor actual costs against standard costs and analyze any variances. Adjust standard costs as needed to reflect changes in the shipping environment or business conditions.

1). Identify Causes: Investigate the causes of significant variances. This may involve analyzing changes in material prices, production processes, or labor efficiency.

2). Take Corrective Action: Implement corrective actions to address the root causes of unfavorable variances. This could include renegotiating supplier contracts, providing additional training to workers, or optimizing production processes.

Step 9. Improvement

Documentation

Document the standard costs and the methodology used to establish them. This documentation is important for transparency, audit purposes, and for communicating the standard costing process to relevant stakeholders.

Communication and Training

Communicate the standard costing procedures to key stakeholders involved in the international shipping process. Provide training if necessary to ensure that the standard costing system is consistently applied.

Continuous Improvement

Continuously review and improve the standard costing procedures based on feedback, changing market conditions, and lessons learned from past shipments.

• Periodically review and update standards to reflect changes in the business environment, technology, or production processes.
• Recalculate standard costs based on the updated standards and incorporate these changes into the standard cost system.

Conclusion

Implementing standard costing involves a systematic approach to setting standards, recording actual performance, analyzing variances, and taking corrective actions. It is an ongoing process that requires regular review and adjustment to adapt to changes in the business environment. Through this cycle of continuous improvement, organizations can achieve better cost control, optimize performance, and make informed business decisions.