What Are Landed Costs?
Landed costs represent all the costs associated with receiving goods, such as shipping costs, labour costs, customs/duty fees, etc.
From an accounting viewpoint, you are allowed to consider these costs as part of the value of your received good. You are therefore increasing the value of the item by including the expenses related to the purchase/receipt. This enables you to better track the overall item cost and helps you establish proper sales prices and determine with more accuracy what is your actual margin for a specific item.
Tracking Landed Costs
Evaluating landed cost comes up with most traditional warehouse/distribution companies.
With Advanced Inventory add-ons, Oracle NetSuite allows you to track Landed Costs on specified Items. Once you’ve enabled the Landed Cost feature, you have to set up all your cost categories and set them as Landed type. Since landed costs occur upon reception of the item, these costs are taken into account on the Item Receipt page.
NetSuite allows you to measure your landed costs at the transaction level, where your costs are distributed evenly across all your received items according to your chosen cost allocation method, which can either be by weight, quantity, or value. When using the body-level Landed Cost, you can either manually specify each incurred cost per cost category, or source it from a Vendor Bill such as a carrier bill for freight.
By checking the ‘Landed Cost Per Line’ box, you can also track your costs at the line level, which allows you to allocate your costs differently depending on each line item. For instance, some items might incur some costs that others don’t, such as duty fees. However, you cannot source a cost from a Vendor Bill, this has to be manually entered into the system.
By clicking on the Landed Cost button, a pop-up appears to allow the user to manually add all needed cost categories to measure per line.
Estimated Landed Cost
In addition, you can download the Supply Chain Management SuiteApp, which includes Estimated Landed Cost. Estimated Landed Cost provides templates on which you can predefine your costs. The templates are most useful if you have a fair idea of what your costs will be; this usually happens when you receive goods from the same supplier or a specific location of import. The idea is to have approximate landed costs for your items before they even occur. Once your template is built, you then set it on the item record (you can set up to 1000 templates per item), and on the Purchase Order, you specify which template to use for each item in your Procure-to-Pay process.
Note that unlike ‘regular’ Landed Cost, Estimated Landed Cost can only be measured at the line item level.
By checking the ‘Calculate Est. Landed Cost’ box, the system now defaults all the landed costs you’ve specified on your template after submitting the Item Receipt. From an accounting perspective, everything has been considered as an estimate.
Landed costs can be tricky to measure at the right time, as some of the costs may come in after an item’s receipt, such as your freight bill. This means that you might have to come back to your Item Receipt and add in new costs.
This is where Estimated Landed Cost proves its worth, especially if a cost comes in after you’ve closed your period and would, therefore, be difficult to account for.
Once you know exactly how much each category costs, and if more accuracy is needed, you can modify those landed costs by editing the Item Receipt. You can also simply go with the estimated landed costs if this proves accurate enough to help you determine your total cost.
For more information about NetSuite Landed Costs feel free to contact us today.