Aug 06, 2021 - 04:37 AM
Thank you for your question. Allow me to answer it for you to the best of my knowledge.
In order to better explain my answer, I think it would be great to quickly acquaint you with some terms related to shipping terms -
First, let's get an understanding of FOB. Freight on Board (FOB), also referred to as Free on Board is an international commercial law term published by the International Chamber of Commerce (ICC). It indicates the point where the costs and risk of shipped goods shift from the seller to the buyer. In modern domestic shipping, the term is utilized to describe when the seller is no longer responsible for the shipped goods and when the buyer is liable for paying the cost of transportation. Ideally, the seller pays the cargo charges to a major port or other shipping destination and the buyer pays the transportation costs from the warehouse to his store.
The determination of who will be charged the freight costs is usually mentioned in the terms of sale. If the Freight On Board is mentioned as “FOB delivered,” the seller or transporter will be entirely responsible for all the costs involved in transporting the consignment. Whenever the FOB terms of sale are mentioned as “FOB Origin,” the buyer is responsible for the costs involved in transporting the goods from the seller’s warehouse to the final destination. It is important to note that FOB defines only who has the shipping cost responsibility and does not define the ownership of the cargo. The ownership is defined by the bill of lading or waybill.
There are a few more terms that may be included on the freight invoice, bill of lading, or other forms of shipping documentation:
FOB Origin, Freight Prepaid: The seller/transporter pays the cost of shipping while the buyer/receiver of goods assumes the responsibility of goods at the point of origin.
FOB Origin, Freight Collect: The buyer pays for freight and shipping costs and assumes full responsibility of the cargo.
FOB Origin, Freight Prepaid & Charged Back: The seller does not pay the cost of shipping, but instead adds the freight costs to the invoice sent to the buyer. The buyer pays the bill on a more expensive invoice since the freight costs were included in the invoice. The buyer also takes ownership of the goods and assumes liability at the point of origin.
FOB Destination, Freight Prepaid: The seller/shipper pays all the shipping costs until the cargo arrives at the buyer’s store. The buyer does not pay any shipping costs.
FOB Destination, Freight Collect: The receiver of goods (the buyer) pays the freight charges upon delivery of the goods. The buyer does not take ownership or liability for the goods until the cargo gets to the buyer’s premises.
FOB Destination, Freight Prepaid & Charged Back: The seller takes responsibility for freight until delivery of the goods, and the buyer deducts the charges from the invoice. The original invoice includes the freight charges initially paid by the seller.
FOB Destination, Freight Collect, and Allowed: The shipper adds the freight costs to the invoice, and the buyer pays the charges. The seller assumes the responsibility for the cargo until delivery.
FOB Value is calculated as following:
FOB Value = Ex-Factory Price + Other Costs
Ex-Factory Price includes Production Cost (Cost of Raw Materials, Labour Cost, Overhead Cost ) plus Profit
Other Costs in the calculation of the FOB value refers to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage, and warehousing, port handling, brokerage fees, service charges, etc.
To use the above explanation in your example,
Cost of one gown = INR 130
Your profit margin = INR 20/gown
Let’s assume total number of gowns ordered by the buyer = 10,000
Total cost = (130+20)*10,000 = INR 15,00,000
Other Costs (e.g. costs to transport to your warehouse, packaging costs etc): INR 2000
Thus, the total cost to be mentioned in the invoice = INR15,02,000 FOB:Mumbai (assuming your warehouse is in Mumbai)
Example of the invoice:
Hope this helps.
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Thanks and regards,