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Table of contents

Table of Contents

Summary

The landed costing screen is used to enter all the costs that are related to items that are arriving from overseas that you are allowed to add to the value of the item. 

There are two stages used because actual costs are often not known until after the products have been receipted into store.  Refer to the flow diagram for more details.

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This document describes Complex Landed Costing process. 

For simple landed costing see Simple Landed Costing

To see which purchase orders require action see Purchase Reports Dashboard

General Overview of Landed Costing

Landed costing adds costs incurred in getting the stock into store to the price paid for the stock and updates the average cost in the system

Note

Purchasing JIT items is a special case of landed cost

  1. The PO is for the JIT item
  2. The Landed cost is against the JIT item
  3. When the PO is received the JIT item explodes into the components that are being stocked (JIT items are by definition not stocked)
  4. The landed costs are allocated across the kit components (by qty in the kit of each item) as the stock is created by counting of the components.


A simple view of what is going on

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For the Accountants - here are the journals created.

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Note

Supplier freight is always allocated to the stock cost. Supplier freight is not known until the supplier invoice is entered and includes freight. The average cost is updated by averaging the freight based on line item value. The average cost update is limited to the value that would have resulted if all the stock is still in the system - if there is less stock remaining than was received then not all the freight will be allocated and some will remain in the "Carriage In" control account

If you do not want the freight allocated or you want to allocate it using a different method then enter it as a separate invoice.

Landed Cost for Drop Ship Purchase Orders

A drop ship purchase order is going direct to the customer and never passes through your warehouse.  However it is important to know the cost to you of the goods.

To create a drop ship purchase order - create a sales order and right click on any order lines that will be drop shipped.  Then on the created purchase order create a landed cost estimate.

  1. Landed Cost Estimate form, Results tab:
    1. If linked PO is a drop ship PO generated from a sales order:
      1. Show sales order code as a link to open the sales order.
      2. If sales order customer uses foreign currency:
        1. Show the currency code and the exchange rate from the SO.
        2. Add 2 columns showing 'Landed cost (ea)' and 'Total landed cost' converted to the SO customer's currency using the SO FX rate.
  2. On a sales order line with SupplierShip YES, if the generated PO has a Landed Cost Estimate then add a context menu option to open the Landed Cost.
    1. If the landed cost has charges then 'Calculate and show apportions' and switch to the Results tab.

The landed cost for a drop ship purchase order can be updated from estimate to actuals but is never "Used" by the system to update average cost. 

There are two stages in Complex Landed Costs

  1. Estimated stage = costs are estimated.   The PO can be receipted and average cost of the stock will use the estimated costs
  2. Actual stage = actual costs are compared with the costs used in the estimate stage and the average costs are then adjusted to suit.

Note you can use Manage Shipments incoming to track the containers arriving and count by container.

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Note

to use Landed costing configurations are required

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  • "Landed Cost Clearing Account"

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  • and Landed Cost Expense Account"

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On the Purchase Order

Set the flag 

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The typical scenario is as follows:

  1. A number of products are to be imported from an overseas country from a number of suppliers
    1. Therefore there are multiple purchase orders each with multiple lines on them
  2. Costs are then incurred
    1. A shipping company is engaged - and will cost money
    2. Transport is arranged in the foreign country, travelling to your country and then within your country to your dock
    3. Export and import fees and duty may apply
  3. The product is then shipped
  4. The product arrives in your store and is placed into stock
  5. Some of this product may be used or sold
  6. The final charges are presented to you by your suppliers (and not by item or PO)

Because of the timing of the final charges being presented we need to:

  1. Use estimated values in order to receipt the stock to store and arrive at an approximate cost
  2. Update the cost once the actuals have been received

Set the Purchase Order to use Landed Costing

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Create a Landed Cost Estimate - one for each PO

  1. Select purchase order that will require landed cost adjustment
  2. Provide a name

Entering the Charges

Note

Expected charges may be entered as estimates and later (even after stock receipt) linked to the actuals and stock value recalculated if required.

FX amounts can be used - they are converted to the base currency for the calculation


  1. Enter Type of charge
    1. Charges are setup at Administration > configuration > Lookups > "ChargeType"
  2. enter Method of apportioning the charge
    1. By weight will look at the weight of each item and allocate by weight and is useful for shipping or air freight that is charged by weight
    2. By Dollar value uses the dollar value on the purchase order
    3. By volume uses the article volume
    4. Manual enables you to manually allocate the charges across all related lines
  3. Foreign currency and conversion rate if required
  4. Description - add a note to so you can remember what this charge was intended to cover

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View the Estimated charges by Purchase Order Line

Action Button: Calculate and show Apportions


Review calculations

Manual values need to be entered in the grid - the remainder will show until you have allocated all the expected cost

Each line will show the purchase order value, the landed costs being added and the final cost ea.  This will then be used to update the average cost

New Average cost = (current average cost * current stock qty + qty from the PO * final cost ea) / (current stock qty + PO stock Qty)

Supplier direct to customer (Drop Ship Purchase orders)

Where the supplier is sending direct to a customer a Sales Order lines is marked as Supplier Direct to Customer and on Authorise this creates a PO to the supplier with final address at the customer.

Where the PO has a Complex Landed Cost - the value of the final landed costs in the Sales Order currency is shown for clarity on margin in the sales order currency

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Set the Estimate Ready to Use

When you have completed the estimate then Action Button: Set Estimate Ready to use

Receiving Stock - no changes to standard process

Note

Stock can only be received if the Landed Cost Estimate has been set to "Ready to Use"

Receive stock as normal 

  1. The system will use the calculated average cost for stock value journals - see Purchase Order for Perishable Goods from PO to Goods Receipt
  2. The Journals created are at the bottom of this page

Landed Cost Estimate recalculates based on actual counts before stock journals created

When the stock is counted the landed cost allocation is updated and recalculated before the Stock Journals are created

  1. If less stock than was expected is counted during receipt - then the average cost of all items will increase
  2. If more stock than than was expected is counted during receipt - then the average cost of all items will decrease

 

Note

 Note: The $ of the stock placed into Assets will be greater than the amount to be paid to the stock supplier.  The balance is placed into a clearing account (see Maintain GL Control Accounts ) until later cleared out when the actual payments/ invoices are linked to the landed cost calculation

Once product is receipted the estimated calculations have been used and cannot be changed.

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Note

 If you do not update the estimate with actuals you will have a balance in the GL Control Account "Landed Cost Clearing Account"

Shipping Organisations may pay GST - to enter a 100% GST line on the journal - Choose TAX type of 100%

Puts entire amount entered to Tax Column

  • TAX ONLY:  Expense Account (no DR or CR)
  • CR : Trade Creditors
  • DR : GST Paid

From the Purchase Order

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from PO to Goods Receipt - open the estimate

Select

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  1. Choose the supplier that you paid (or you have an invoice for)
  2. Choose from a list of invoices / payments from that supplier
    1. Note that the list of invoices is filtered by (1) those against a GL account flagged as a Landed Cost Account that have not yet been associated with a landed cost
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  3. Determine the amount to use for this landed cost calculation (you can change this later)

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an invoice to link to and select the line/s on the invoice to use - allocate the amounts to use

  • The Invoices listed are all invoices that are listed in GL Accounts with "Landed Cost" special type set


Note

Add additional cost lines if required

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Action Button: Calculate Actual Average costs

Review calculations and adjust manual allocations in the grid

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.  Status "Calculate and Show Apportions"

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Finalised Landed Costs

Where changes are to be made to the Average Cost for the Stock Articles

  • The average cost of the article will be adjusted to the new average cost
    • The new average cost will be applied to the current stock = ((new av cost - current av cost) * Quantity on the PO line ) / total Qty in stock now
    • The new average cost will be set regardless of the amount of stock in the system
  • Journals will be written including clearing out any balance in the clearing account
  • The status will then move to Actual used

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Landed costing diagram of the flow.

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The typical scenario is as follows:

  1. A number of products are to be imported from an overseas country from a number of suppliers
    1. Therefore there are multiple purchase orders each with multiple lines on them
  2. Costs are then incurred
    1. A shipping company is engaged - and will cost money
    2. Transport is arranged in the foreign country, travelling to your country and then within your country to your dock
    3. Export and import fees and duty may apply
  3. The product is then shipped
  4. The product arrives in your store and is placed into stock
  5. Some of this product may be used or sold
  6. The final charges are presented to you

Because of the timing of the final charges being presented we need to:

  1. Use estimated values in order to receipt the stock to store and arrive at an approximate cost
  2. Update the cost once the actuals have been received.
Note

If the stock level at the time of applying the actuals is below the quantity of stock on the PO line

  1. The stock Average cost will be set to the Average cost for the PO Line Actuals
  2. The remainder will be journaled to the GL Control Accounts Account "Landed Cost Expense" account
    1. This is to avoid stock average costs being artificially inflated due to insufficient stock at time of entering actuals - see example below

To illustrate

  1. A product was out of stock
  2. Say 100 units of a product was purchased for $100 with $100 total landed costs
    1. The Estimated Landed Cost is $2.00 ea
    2. When the PO is received - the average cost is set to $2
    3. Stock value has increased by $200 = 100 items x $2
  3. Then 50 are sold and shipped to customers - leaving 50 in stock
  4. When the Actuals are linked to Invoices it is found that Landed costs were $150 in total ($1.50 each)
    1. The Actual Landed Cost is $2.50 ea
    2. Stock value increase should have been $250
  5. When the Landed Cost is finalised - the average cost is set to $2.50 (an increase of $0.50)
    1. Stock value increases by $25 = $0.50 x 50 items
    2. $25 is not allocated to stock value (if it was then the average cost would have to be increased to $3.00 each item)
      1. $25 is allocated to the "Landed Cost Expense Account"


Landed costing diagram of the flow.

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Accounting Journals

Journals for receipt of Stock item with locked estimateDebitCreditEstimate of $20 costs
Stock on Hand - assets120
 

Increase in stock value
Trade Creditors Liabilities
 

100Amount paid to stock supplier
Landed cost clearing account - liabilities
 

20Total allocated other costs for these items based on the estimate
Totals120120
   
  





Stock Supplier InvoiceDrCrPayment to supplier for stock
Trade Creditors - Liabilities
 

100
 

Goods Received not Invoiced100
  


Total100100
  
   





CR Invoice Journal for a cost paid (customs)
- no changes required
= must be linked to landed cost clearing accountDrCrPayment of $25 costs
Trade Creditors - Liabilities
 General Cheque Account - Assets25  

25
 

    
Landed cost clearing account25

Totals2525
 





Once a journal line is linked to a landed cost account














Adjustment journal required once actuals are associatedDrCrAdjustment of stock from $20 estimate to $25 Actual
Landed Cost Expenses To Stock - Expense Account
 

25Expense account tracking landed costs in separate account
Landed cost clearing account - liabilities20
 

Clear the clearing account of the estimate value
Stock on Hand - Assets - Credit5
 

Update the stock on hand with the increase (Decrease) in value required
Totals2525

Result = Stock increases $5 (now $25 more than paid to stock supplier)

and Landed Cost Clearing account = 0

Landed cost expense account = Actual = $25

    





Adjustment Journal if Actuals are used prior to stock receiptDrCrWhen $25 actuals are known prior to receipt of stock
Stock on Hand - assets125
 

Increase in stock value
Trade Creditors Liabilities
 

100Amount to be paid to stock supplier
Landed cost expenses to stock - expense account
 

25Expense account tracking landed costs in separate account
Totals125125

Result = Stock increases $25 more than paid to stock supplier

Landed cost expense account = Actual = $25

GL Control Accounts for Landed Costing

So two new control accounts have been added to Maintain Control accounts in GL Control Accounts

  1. Landed Cost clearing account 
    1. Filled with values when stock is receipted using estimated costs
    2. Cleared once known costs are allocated
  2. Landed Cost Expense account
    1. Tracks all costs that have been added to stock as part of an actual landed cost update

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Example Charge Types Configuration

Setup in Lookups screen

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GL Account configuration to show invoices in landed cost Actuals list

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Landed Cost Audit

Landed cost calculations are complex and it is important that the actual cost update reflects accurately the journaled amount.

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Image Removed  Because the average cost of a SKU is to two decimal places (as required by COGS journals) there is commonly a rounding difference.

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