Landed cost is the total price of a product once it has arrived at buyers’ hand. Landed costs include all charges associated with a good transfer. Landed costs are the total cost of a landed shipment including:
- Purchase Price
- Other Costs up to the Port of Destination.
In some instances, it may also include the customs duties and other taxes levied on the shipment.
This includes the transportation fee, duty, handling fees, taxes, insurance, currency conversion, crating, handling and payment fees.etc. These prices are added and divided to get the actual selling price of the product.
In other words, landed costs are: The total price of a product once it has arrived at a buyers door (Cost of Product + Shipping + Customs + Risk).
Landed costs can only be applied to products with a FIFO costing method and an automated inventory valuation (which requires the accounting application to be installed).
1.Enabling Landed Cost:
To work with Landed Cost to activate with Landed Cost feature.
Go to Inventory <- Configuration <- Setting Scroll down to the Costing section and check the checkbox for Landed Costs. When ready, hit the button
2. Configuring Landed Cost Types
Start by creating products which indicate your landed costs such as freight charges, Insurance, Custom Duties, etc. You can Create the product directly from the warehouse. Go to Inventory–>Configuration–>Landed Cost Type–>Click Create. Make sure that “can constitute landed cost” option is ticked, if not then tick that option. Choose Split Method according to your landed cost type. Make sure to also set “Inventory Valuation” under Accounting Tab.
Click on Configuration <- Landed Cost Types <- Select Create button
Then, select the Save button
Fill the following details:
- Name The name of the Landed Cost.
- Split Method: Select a Split Method, the types of which are outlined below in more detail.
- Expense Account: This should be an expense account that makes sense for the product.
- Product Type: Select the appropriate product type; in most cases, this will be Service.
Landed Cost Split Methods:
Equal: Cost will be equally divided by moving the line
By Quantity: Cost will be divided based on the product quantity
By Current Cost: Cost will be divided based on the product’s current cost
Weight: Cost will be divided based on weight
Volume: Cost will be divided based on volume
3. Compute Landed Cost for a warehouse transfer:
Go in Inventory ‣ Operations ‣ Landed Costs and click on the Create button.
Here some fields are given. Now Save the Landed Costs.
- Transfers: Select the transfers on which you want to attribute additional costs and the lines of the cost you want to add up.
- Account Journal: The journal in which you want to post the landed costs.
- Cost Lines: Click add an item to add a previously created Landed Cost Type. Add as many lines as needed.
To confirm, click on the Validate button.