Landed costs for purchases

A landed cost is the total price of a product once it has arrived at the buyer's door.

The landed cost includes:

the original price of the product
all transportation fees
customs
duties
tax
insurance
currency conversion
crating
handling
payment fees and any other costs outside our direct inventory purchase cost.

These costs are typically applied by handling or fulfillment services under their own invoice, which then needs to be allocated to the correct purchase invoices. Expenses can also be allocated in this way to assemblies, stock transfers, and production runs.

Costs can be allocated to purchases proportionally according to the costs of each line of the purchase, proportionally according to the quantity/weight/volume of the purchased products, or manually with any distribution.

Prerequisites

See Processing a Purchase

Allocate landed costs to a purchase by cost

Landed costs can be allocated to a purchase by cost using the additional costs section of a purchase, manual journals, or from a separate invoice.

You can find the Manual Journals tab when viewing a purchase. Allocated expenses will increase the stock on hand value of your inventory. To capitalize a manual journal expense, the debit account should be set to the same inventory account as the item lines.

In the Type field, you can select from the dropdown menu how the manual journal expense will be distributed among the purchase order products. Select Cost to allocate the journal total proportionally based on the cost of each invoice line.

Additional costs of the purchase can also be allocated to a product's COGS in this way, increasing the stock on hand value of your inventory. Make sure that the account specified for the additional cost is the same as the inventory account for the products. The landed cost is not divided equally, but allocated proportionally, based on each invoice line cost to the total invoice amount.

Allocate landed costs to a purchase by quantity, weight, or volume

Landed costs can be allocated according to quantity, weight, or volume using a manual journal. You can find the Manual Journals tab from the purchase itself. The debit account should be set to the same inventory account as the item lines in order to allocate the journal cost to the product's COGS.

In the Type field, select:

Quantity: The landed cost will be allocated proportionally based on the total quantity of products in the purchase order.
Weight: The landed cost will be allocated proportionally based on the weight of the products in the purchase order. Ensure product weight and dimensions are properly configured for all products before selecting this option.
Volume: The landed cost will be allocated proportionally based on the volume of the products in the purchase order. Ensure product weight and dimensions are properly configured for all products before selecting this option.

Allocate landed costs to a purchase manually

Landed costs can be allocated to a purchase manually by using manual journals, or from a separate invoice.

You can find the Manual Journals tab from the purchase itself. The debit account should be set to the same inventory account as the item lines in order to allocate the journal cost to the product's COGS.

If Type: Manually is selected, you will see the option to View more. Save the journal and click View more to display the purchase order invoice lines.

Allocate the manual journal amount to the invoice lines as required. Authorize the manual journal to finish. This can then be edited manually if required.

Allocate landed costs from a separate invoice

Costs for purchases are often applied by handling or fulfillment services under their own invoice, rather than as an additional cost at the time of the task. Allocate these costs to a purchase with the following steps:

Navigate to Purchases → New → Service Purchase. Service purchases can also be used to allocate expenses.
Select Blind Receipt in the document header.
Enter the landed cost invoice details.
Enter the costs in the Additional Costs panel. In this case, the costs include insurance of $150 and shipping of $350.
Click Authorize.
Click the Expenses button which has now appeared.
Select an expense to distribute.
Click the +Allocation button and select what type of task you want to distribute the expenses to: purchase, stock transfer, assembly, or production run.
You can choose to allocate expenses to a single task or multiple tasks. You can either:
- manually type in the cost you want to allocate to each invoice
- or click Auto-allocate to have the system do it for you. Allocated costs are calculated proportionally based on the invoice cost.
Save.

The landed cost will be distributed based on the total amount of each product included in the task and will not be based on the weight or unit of the product. The landed cost is not divided equally, but allocated proportionally, based on each invoice line cost to the total invoice amount.

We can now see that links to the tasks have been created. Click the link to go to the relevant task.

The allocated expenses can be viewed by clicking the Manual Journals tab of the linked documents. This can then be edited manually if required.

Exclude expenses from a product's cost

To exclude additional costs from a product's cost, simply set the account for those lines to an expense account that is separate from the account used for the products. This applies to the additional costs section of a purchase and any manual journals.

Effective dates of COGS journal entries

Journal entries for COGS, including purchase costs and landed costs, are generated upon the authorization of the sale ship tab. The effective date of the COGS journal will be the ship authorization date.

Upon the authorization of the sale shipping tab, a single COGS journal will be created from the PO invoice, Manual Journal tab and any landed costs allocated from separate invoices.

However, if landed costs were added after the item was shipped, then a second COGS journal will be added later. The effective date will be the landed cost authorization.