Landed Cost Voucher
Landed Cost represents the comprehensive expenses incurred to deliver a product to the buyer’s destination.
This total cost encompasses various factors such as the initial item cost, shipping expenses, customs duties, taxes, insurance, currency conversion fees, and other related charges. While not all components may apply to every shipment, it’s essential to consider relevant expenses as part of the overall landed cost.
> What is Landed Cost?
To gain a deeper understanding of landed cost, let’s consider a familiar scenario from our daily lives. Suppose you’re in the market for a new washing machine for your home. Before making a purchase, you typically research to find the best price. During your search, you come across a great deal at a store located far from your home. However, you must also factor in the shipping costs associated with buying from that distant store. The total cost, including shipping, may end up being higher than the price offered at a nearby store. In such a situation, you’re likely to opt for the store closer to home, as the landed cost of the item is lower there.
Similarly, in business, accurately determining the landed cost of an item or product is vital. It influences the pricing strategy for that item and directly impacts the company’s overall profitability. Therefore, all relevant expenses associated with landed cost should be incorporated into the item’s valuation rate.
According to the Third-Party Logistics Study, only 45% of respondents reported extensive use of landed cost. The primary reasons cited for not utilizing landed cost were a lack of necessary data (49%), inadequate tools (48%), time constraints (31%), and uncertainty about how to apply landed cost (27%).
To access the Landed Cost Voucher list, go to: > Home > Stock > Tools > Landed Cost Voucher
1. Prerequisites
Before creating and using Landed Cost Voucher, it is advised that you create the following first:
- A Purchase Receipt or Purchase Invoice with Update Stock enabled. This is your original receipt of goods.
- A Purchase Invoice for the landed costs (e.g. Freight, Insurance, etc.)
We will then use the Landed Cost Voucher to decrease the costs recorded through the second Purchase Invoice and increase the stock value.
2. How to create a Landed Cost Voucher
- Go to the Landed Cost Voucher list, click on New.
- Select Receipt Document Type whether Purchase Invoice or Receipt. You can select multiple documents.
- Select the specific Invoice or Receipt. The supplier name and Grand Total will be fetched automatically.
- Click on the Get Items from Purchase Receipts button to fetch the item details from the Purchase Invoice/Receipt.
- Select whether Distribute Charges Based On should be on quantity or Amount.
- Enter the Expense Account and the Amount for Additional Costs in the Taxes and Charges table. The amount will be distributed equally based on the quantity or amount as per your selection.
- Save and Submit.
Within the document, you have the option to choose multiple Purchase Receipts/Invoices and import all items from those documents. Following this, you should include relevant charges in the “Taxes and Charges” table. Should any charges not apply to a particular item, you can effortlessly remove that item from the list.
The additional charges are allocated proportionately across all items, based on either their amount or quantity. If the allocation is based on the amount, the item with the highest amount will receive the greatest proportion of the charges. Conversely, if the allocation is based on quantity, the item with the highest quantity will receive the majority of the charges, with lesser amounts distributed among the remaining items.
3. Related Actions
3.1 Adding Landed Cost in the Purchase Receipt itself
In BizCentric, you can incorporate charges related to landed costs within the “Taxes and Charges” table when creating a Purchase Receipt (PR). These charges should be designated for “Total and Valuation” or “Valuation” in the ‘Consider Tax or Charge for’ field. Charges payable to the same Supplier from whom you are procuring the items should be labeled as “Total and Valuation”. Conversely, if applicable charges are payable to a third party, they should be marked as “Valuation”. Upon submission of the Purchase Receipt, the system will compute the landed cost for all items, factoring in these charges. This landed cost will then be utilized to determine the item’s Valuation Rate, based on the FIFO/Moving Average method.
However, in practical scenarios, all applicable charges for the landed cost might not be known at the time of creating the Purchase Receipt. For instance, your transporter may provide the invoice after a month, but delaying the booking of the Purchase Receipt until then is not feasible. Companies engaged in importing products/parts often incur significant expenses such as Customs Duty, for which they receive invoices from the Customs Department after a delay. In such cases, the “Landed Cost Voucher” feature proves beneficial, allowing you to incorporate these additional charges at a later date and update the landed cost of purchased items accordingly.
3.2 What happens on submission?
- The Valuation Rate of items is recalculated based on the new landed cost.
- If you are utilizing the “Perpetual Inventory” method, the system will generate general ledger entries to adjust the Stock-in-Hand balance. It will debit (increase) the corresponding “warehouse account” and credit (decrease) the Expense Account specified in the Taxes and Charges table. If the items have already been delivered, the Cost-of-Goods-Sold (CoGS) value has been recorded based on the old valuation rate. Therefore, general ledger entries are reposted for all subsequent outgoing entries of associated items to rectify the CoGS value.