Landed cost (Import Cost) represents the full cost of an imported product including all other costs and expenses like customs, taxes and shipping. Most of the imported prefer to include all other costs in the standard product cost.
Example: A Company buys computers at the price of $100 and 10 computers are ordered. A Freight service item for $100 is added to the P/O, and using the Quantity method, the price of the computer is automatically recalculated to $110.
leaving the P/O open until the Shipping and Freight bill arrives to add it to the item cost line:
- When the Shipping and Freight bill comes in, add the cost to the original P/O, which is then incorporated into the item pricing as described.
- Then receive the P/O to the inventory, will add it to the inventory account and recalculate the standard cost.
- Because now this overstates the amount payable to the vendor of the original P/O, when the P/O is invoiced, the Shipping and Freight account must be added as a G/L item to the invoice using the negative amount of the Shipping and Freight supplier payment, by using supplier invoice and place the GL account of shipping to a negative value.
- The amount invoiced should now be correct for the original vendor.
- Shipping and Freight supplier is paid in the usual manner against the G/L Freight account.
- The net Freight expense is zero because the negative amount on the invoice offsets the positive amount of the Shipping and Freight supplier payment.
Result: Landed Cost => the cost of the Supplier freight is captured in the item price and will be reflected in COGS when the item is sold.
NOTE: The P/O had to remain open to wait for the Shipping and Freight Supplier billing, which delays deliveries.
- You can estimate the value of the Shipping and Freight billing and settle the difference using a control account.