Landed Costs Understanding
From TrueERP wiki
Understanding Landed Costs and Average Costs
There is a widely held mis-belief that the average costs of a product, should include the cost of shipping, delivery etc or the cost to land the product on your shelf.
This is not the case and should not be considered, without a very strong understanding of how this works and a strong understanding of the additional work required to maintain this belief.
The Landed Cost value is designed purely for the purpose of calculating what your sell price should be based on either a margin or a mark-up of the landed cost.
While many may have theory on how this should work the reality of it is as follows.
Landed Costs Expenses
Expense Delivery $1,000
Product Widget $ 300
This makes the
Average Cost $ 300
Landed Cost $1,300
When you sell the Product
Income Widget Sale $2,000
Landed Costs as Stand Alone
Income Widget Sale $2,000
Expense Delivery $1,000
COGS $ 300
Total Expenses $1,300
Nett $ 700
Landed Costs in Average Costs
Income Widget Sale $2,000
Expense Delivery $1,000
COGS $1,300
Total Expenses $2,300
Nett -$ 300
