Storage Costs and Optimal Order Volume

Unit 6: Storage Costs and Optimal Order Volume

• Storage costs and demand volume are explained

Total Cost of the Manufactured Product

• Includes the cost of acquiring materials and packaging incorporated into the product
• Storage costs for raw materials, intermediate goods, and finished goods are factored in
• Manufacturing or transformation process costs are components

Purchase Price vs. Acquisition Cost

• Purchase price is the price the provider applies on the invoice
  • It equals the total cost of items minus discounts, excluding VAT
• Acquisition cost includes the purchase price on the invoice plus all expenses until the goods reach the buyer's warehouse

Calculating Acquisition Cost

• Calculated by considering:
  • Purchase amount of acquired items
  • Deducting discounts (commercial, volume discounts, early payment, etc.)
  • Adding purchase expenses (packaging, transport, insurance, etc.)
• Gross purchase amount is the result of multiplying the quantities acquired by the corresponding unit price
  • Gross amount = units x price

Discounts Applicable to Product Purchases

• Various types of discounts exist:
  • Commercial discount
  • Volume or quantity discount
  • Early payment discount
  • Seasonal discount
  • Promotional discount
  • Bonus units

Purchase or Acquisition Expenses

• Includes:
  • Cost of containers and packaging
  • Transportation costs
  • Loading and unloading costs
  • Insurance and tariff expenses

Transportation Cost Terms by Transport Method

• "Portes" refers to costs when transport occurs by road or rail (land transport)
• "Freight" (Fletes) is when transport occurs by ship or plane (fluvial or air transport)

Incoterms Clauses in International Trade

• Multimodal Incoterms include EXW, FCA, CPT, CIP, DAT, DAP, and DDP
• Maritime Incoterms or for navigable waterways are FAS, FOB, CFR, and CIF

• The seller must process export customs documents, except under Incoterm EXW
  • Completing these procedures is known as "with clearance," so the seller is responsible for fulfilling export obligations
• In some cases, like Incoterm DDP, the seller is also responsible for import duties in the destination country

Incoterms Clauses: Seller's Costs and Responsibilities

• Incoterms define responsibilities for costs and tasks between seller and buyer in international trade

• These terms specify who is responsible for loading, in-land transport, export clearance, freight, insurance, unloading etc.

• The specific allocation depends on the Incoterm version (e.g., 2020)

• Incoterms must be set before the merchandise is handed over for transport

Classification of Costs Based on Product Application

• Direct costs can be identified with the product that caused them
• Indirect costs are shared expenses not attributable to a specific item or department
• Semi-direct costs cannot be applied to a specific product, order, or production lot, but can be located within a specific workshop, section, or department of the company

Cost Classification by Activity Level

• Fixed costs occur due to the company operating and are independent of the units made or stored
• Variable costs change depending on the level of activity and depend on the number of units made or stored
• Manufacturing costs are the sum of fixed and variable costs

Cost Behavior

• Variable costs depend on the volume of production
  • Costs increase along with output
• Fixed costs remain steady
  • They do not grow with increased output volume
• Total cost relies on production volume
  • Increased production raises total costs

Components of Manufacturing Costs

• Acquisition cost of all materials incorporated into the product
• Packaging cost
• Salaries and wages of production personnel
• Services from companies or specialists during production
• Fuel and energy costs during production
• Amortization or rent of premises and warehouses
• Amortization or wear and tear and maintenance of facilities and machinery

Calculating the Cost of Manufactured Products

• Consider consumption of raw materials and other materials
• Direct labor costs
• Direct manufacturing costs
• Prorated share of indirect and semi-direct costs

Calculating Earnings

• Net Sales - Cost of goods sold = Gross profit
• Gross Profit - Operating expenses = Net operating income

The Relationship Between Manufacturing Volume and Profits

• Profit equals revenues from sales minus the cost of goods sold
• When production rises, sales and profits grow, as do costs

Break-Even Point

• Companies realize profits after manufacturing above the break-even point, also the umbral de rentabilidad

• The break-even point is where total revenue equals total cost

• It represents a point of equilibrium for production or sales volume

Optimal Order Volume (VOP)

• Many companies could produce more items using the same resources, which increase production
• The optimal order volume balances order management and holding costs