Landed Costs

Landed Costs

Overview

The Landed Costs feature enables you to allocate expenses incurred in transporting products from the vendor to your warehouse. These costs can be distributed automatically or manually across the cost of goods sold for items on a Purchase Order or Item Receipt. Examples of such expenses include freight, tariffs, insurance, customs duties, currency conversion, crating, and ocean transport.

Landed costs are recorded at the time of Item Receipt or bill (if Item Receipts are not used). Below are key concepts and definitions to understand:
  1. Landed Cost: The expenses associated with transporting a product from the vendor to your warehouse.
  2. Acquisition Cost: The total cost of a product, including its purchase price and associated landed costs.



How Landed Costs Work

When added to an Item Receipt or Bill as Service Items alongside products, these costs are treated as payments to the vendor along with the products. In this case, no portion of these costs is allocated to the Cost of Goods Sold account. Instead, expenses like shipping are recorded in accounts such as Shipping Expenses. However, costs entered in the Landed Costs tab are allocated directly to the Cost of Goods Sold.

The exact increase in the Cost of Goods Sold per item is calculated using one of three allocation methods:
  • By Quantity: Allocates costs based on the number of units received for each product. Products with higher quantities receive a larger share of the cost.
  • By Amount: Distributes costs according to the value of the items, with more expensive products receiving a greater portion of the cost.
  • By Weight: Allocates costs based on the weight of each product, with heavier items bearing a larger share of the cost.



Automatic Allocation

In the Quantity method, landed costs are divided by the total quantity of all items to calculate a per-unit cost. This per-unit cost is then allocated to each item based on its quantity in the document. For example, consider two items with a total landed cost of $100. Item #1 has a quantity of 2, and item #2 has a quantity of 3, giving a total quantity of 5. Dividing $100 by 5 results in a per-unit cost of $20. Based on their respective quantities, item #1 is allocated $40 (2 × $20), and item #2 is allocated $60 (3 × $20).

The Amount method allocates landed costs based on the total cost of the items, while the Weight method distributes costs according to the weight of each item. If no specific allocation method is selected, the system defaults to By Quantity.

Manual Allocation

Alternatively, costs can be allocated manually by enabling the Allocate Landed Cost Manually checkbox and entering amounts directly on each line. In this case, the total allocated must equal the total landed costs.



Setting Up Landed Cost

Enable Landed Cost Feature

To enable the Landed Cost feature:
  1. Navigate to Admin Panel > Purchase Settings.
  2. Select the Allow Landed Cost checkbox.


Create Service Item for Landed Cost

To create a Service Item:
  1. Navigate to Lists > Items > Create New or Quick Menu > Item (Create).
  2. Enter the Item Code manually or allow the system to auto-generate it.
  3. Enter the Item Description.
  4. Set the Type to Service.
  5. Enable the Landed Cost checkbox.
  6. Select the Allocation Type: By Quantity, By Amount, or By Weight.
  7. Go to the Setup Tab and enter the following:
    • Landed Cost Account
    • Sales Account
    • Cost of Services Sold


Using Landed Costs

To enter Landed Costs on an Item Receipt:
  1. Generate an Item Receipt from the Purchase Order (or a Bill if Item Receipts are not used) and complete it as per your standard process.
  2. On the Item Receipt, navigate to the Landed Cost tab.
  3. Add and enter the landed costs on the lines by typing the item code or description in the Item Code field.
    • If the required landed cost item is not available in the drop-down list, create it on the fly:
      • Click the Create Item button or select Show All, then click Create New Item.
      • Choose Service as the item type and enable the Landed Costs checkbox.
      • Select an Allocation Method.
      • Note: These items will only appear in the Landed Costs tab.



  4. Enter the Cost.
  5. Link the landed cost to a Bill or create the Bill on the fly.



  6. Add a Memo, if applicable.
  7. Save the Item Receipt.


The Landed Cost feature is a powerful tool for accurately tracking and allocating the true costs of acquiring inventory. By incorporating expenses like freight, tariffs, and customs into the cost of goods sold, businesses can gain a clearer picture of product profitability and make informed financial decisions.
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Whether using automatic or manual allocation methods, setting up the Landed Cost feature and creating Service Items ensures your inventory costs are accurately represented. Follow the outlined steps to enable and use this feature effectively, and reach out to support if you need further assistance.

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