Costs Associated With Buying and Selling PDF

COSTS ASSOCIATED WITH BUYING AND SELLING Costs associated with buying.  These are the extra expenses incurred when the buyer purchases products from a seller. They are the reason why the value of the transaction is greater than the value of the goods traded. They include the...

COSTS ASSOCIATED WITH BUYING AND SELLING Costs associated with buying.  These are the extra expenses incurred when the buyer purchases products from a seller. They are the reason why the value of the transaction is greater than the value of the goods traded. They include the following;  1. Transport costs. When goods are traded, they have to be transported from the seller to the buyer. Sometimes the buyer has to meet these costs. For example, when buying goods from an online shop, a delivery charge is usually added on top of the price of the goods sold. The size of the transport costs usually vary depending on the distance to be travelled, the weight of the goods (refrigertated goods), the nature of the goods (insurance), the risks associated and so on.  2. Transaction costs. These are the financial costs incurred when goods are being exchanged. They include the following; a.Taxes- in many countries, taxes are levied on the sale of goods. For example, value added tax (VAT) is added to the cost of goods when they are being purchased. Other countries might use sales tax. This refers to the tax imposed on the value of goods and services sold to  b. Tariffs- these are the taxes imposed on the value of goods bought from overseas. They make imported goods to be more expensive. c. Currency exchange fees- this is the amount of money charged when purchasing another country’s currency.  3. Administration costs. These are the costs associated with the designing, printing and preparation of those documents that are used as records for the transactions made by a business. These documents provide written records that are helpful in settling trade disputes that may occur. They also provide evidence of sales and purchases for accountants and tax authorities.  4. Environmental costs. Buying goods can result in environmental costs. Examples of such costs include; a. Pollution resulting from the transportation of goods through emissions from vehicles, ships, aircrafts, etc. b. Loss of habitat for wildlife and plants due to the development of transport systems. c. Waste produced from the purchase of goods such as packaging, etc.  5. Research costs. These are costs incurred when searching for new sources of goods and services. They might also include the costs of visiting potential suppliers. Other costs include employing specialist buying staff who are familiar with the best quality goods and prices.  6. Staffing costs. These are mostly common with large businesses such as supermarkets and chain stores which have a specialist buying department. The specialist buyers employed in these departments demand for high wages. Staffing costs for the transport of goods will also have to be met. E.g. the costs of hiring drivers, etc. Costs associated with selling. These are the costs incurred by a firm in maintaining current sales levels, increasing sales levels and attracting new customers. They include the following;  1.Sales staff. Businesses usually employ a sales team and their main aim is to sell as much as possible. The salaries of sales staff are likely to be linked to their performance. Some are paid a commission while others are paid a salary together with a commission. The more they sell the more they earn. Some businesses may even give bonuses if certain sales targets are reached.  2. Payment processes. The sale of goods and services requires payment systems. These payment systems include; Cash, Credit cards, Debit cards, Mobile phone payments, Standing orders, direct debits, bank transfers, cheques, electronic transfers, etc. some of these payment systems are likely to incur charges. Especially the ones where banks are associated. Businesses have to pay a certain  3. Stolen inventory. Many sellers such as wholesalers and retailers have to store the goods they sell in store rooms or warehouses. This usually attracts the risk of theft therefore subjecting the business to shrinkage costs. This refers to the loss of inventory due to factors such as employee theft, shoplifting, etc. Goods may also be stolen when being transported into or out of the business. All of these incurs costs into  However, a business may reduce the costs of stolen inventory by doing the following; a. Doing a stock take on a regular basis. i.e. making a detailed record of the stocks b. Installing cctv cameras c. Employing a security guard Ensuring the storage areas are well lit. etc  4. Damaged inventory. Retailers, wholesalers, warehouse operators, manufacturers and farmers might experience shrinkage costs if inventories get damaged when being handled. Some goods like fresh produce may also go bad quickly because they have a limited shelf-life. When such goods are left unsold it results to financial loss. Improving on the quality of packaging is one way of reducing the cost of  5. Distribution costs. In recent years, online sales have been growing rapidly. As these online sales increase, distribution costs also increase. This includes the cost of picking orders from a warehouse and the cost of transporting the orders to the customers.