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Manage Landed Costs

Landed Costs are expenses you pay to have the merchandise transported from the Vendor's location to your location. They typically include transportation fees, customs, duties, insurance, and warehouse handling. When you purchase inventory from an overseas country, or from a place that is far away, the landed cost amount is usually substantial. 

Not capitalizing landed costs into your inventory can create all sorts of problems:

  • Your COGS is understated, and your profit margin is overstated.

  • You don't know the exact margin by item which could cause pricing errors.

  • Your commission or other incentive programs would not be optimized.

  • Your inventory value is understated, hence your debt ratio is overstated, which would be looked upon unfavorably by your bank.

There are two methods of capitalizing your landed costs, Actual or Accrual.

  1. Actual - You only assign and post landed cost purchase invoices against inventory receipts when you receive the invoices.

  2. Accrual - You record estimated landed costs to receipts as soon as you receive inventory, then post actual invoices to reverse the accruals.

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