Landed Cost Calculation Methods
Varadharaj V
Nov 17, 2022 - 6 mins read
The Landed cost is an additional expenses incurred before the goods reach your hands from your Vendor or Supplier. In other words, The Expenses such as Shipment, Custom duty, Additional taxes on it, Insurance, Exchange Rate losses, and etc. The Man power costs additional for lifting or transporting costs are also associated with it. So the landed cost needs to be applied to recalculate the standard cost of the item and update the material standard cost.
The Landed cost will be used to calculate the standard cost of the items in the purchase invoice, e.g Suppose if we have more than 2 items in that purchase invoice, when you apply the standard cost, it will also effect in these all the items, it can be based on two ways.
- Based on Quantity
- Based on Value of the items.
Let's check one by one in detail.
Based on Quantity
When we are buying more quantities of several items, and if you enabled the system to apply landed cost based on the total quantity of the invoice is one method. E.g :
We are buying 3 items
A. => 10 qty
B. => 15 qty
C. => 25 qty
So here the system has to use the total quantity such as 10+15+25 = 50 is the total quantity. And suppose the shipment cost is 100 and custom duty is 50 , so together it will be 150 as the landed cost for this invoice. If we are applying it based on quantity means, 150/50 = 3 is additional cost for each quantity. in this case we have to update this price with our each line items A, B and C standard cost with additionally +3 with it.
Based On Value
This is alternative to the Quantity method. its widely used method, because of each products value is important to apply the landed cost. Lets go with example. Like we are buying 3 items like before.
A => 20 INR
B => 30 INR
C => 40 INR
And Shipping cost 100 and Tax 25 and custom duty 50 , so together it will be 175 INR now. With this, we have to calculate the price based on items, 175/90 = 1.9444
A => 20*1.9444 = 38.889+20 = 58.889
B => 30*1.944 = 58.333+30 = 88.333
C => 40*1.944 = 40+77.778 = 118.778
Based on these standard costs, the inventory value will be updated in our system. This option you can choose it from company setup to take effect.
C => 40*1.944 = 40+77.778 = 118.778
Based on these standard costs, the inventory value will be updated in our system. This option you can choose it from company setup to take effect.