Difference between revisions of "Landed Costs"

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Revision as of 11:44, 20 April 2011

Overview

It is possible to associate landed costs for an imported product with the original Purchase Order even though the Purchase Order has often been paid and closed before the landed costs are fully known. How to Use Landed Costs To use Landed Costs you must turn on Foreign Currency in Purchases and activate at least 1 Foreign Exchange Rate

• Select Utilities
• Select Preferences
• Select Purchases
• Select Use Foreign Currency under Purchase Order Lines
• Save

• Select General
• Select Foreign Exchange List
• Select Inactive Currencies
• Select the currency you want to activate
• Enter current Buy and Sell rates and select active
• Save

• Select Purchases
• Select Supplier List
• Select the supplier you will purchase imports from
• Select General Tab
• Select the Foreign Currency for this supplier from the drop down list
• Save

How to Process Landed Costs Before recording Landed Costs you must have previously created a Purchase Order

• Select Purchases
• Select Bill
• Enter Supplier Details (usually a Customs Agent or similar)
• Select the account to post Landed Costs to
• Enter the amount
• In the Related PO column, select the Purchase Order number that the landed costs relate to
• Save

• Select Purchases
• Select Purchase Order List
• Select the Purchase order
• Select the Import Costs button on the right of the screen
• The landed costs will now appear in the landed costs column of the purchase order
• Save

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
       
 COGS           $    300 

Landed Costs as Stand Alone

Income
Widget Sale $2,000
$2,000
Expense
Delivery $1,000
COGS $ 300
$1,300

Nett $ 700

Landed Costs in Average Costs

Income
Widget Sale $2,000
$2,000
Expense
Delivery $1,000
COGS $1,300
$2,300

Nett -$ 300