Landed cost represents the total expense of getting an item to your location. This includes the item price plus charges like shipping, customs fees, and processing. More companies are focusing on landed costs as they increasingly source products from global suppliers and manufacturers. Using landed costs provides a more accurate view of the “total” cost, reflecting it in inventory value as an asset, rather than treating additional expenses separately.

Let’s illustrate with an example: you buy 100 widgets from a European supplier at $20 per widget. Additional costs include $1500 for overseas shipping, $500 for customs and processing, and $400 for domestic shipping. If you value your widgets solely based on the vendor price, your inventory cost would be $2000 (100 widgets x $20/widget), and you would separately expense the additional $2400.

However, using landed costs changes the picture. The total inventory value, including all associated costs, becomes $4400 (100 widgets x $44/each). This provides a more precise understanding of your inventory’s worth. Consequently, this higher cost influences your Cost of Goods Sold and ultimately impacts your profit margin accordingly.

Now, let’s explore how landed costs function within Dynamics GP. The system allows you to manage landed costs in these ways:

• Estimated Recording on Receipt: You can record an estimated landed cost amount upon receiving the goods.
• Invoice Matching and Revaluation: Matching landed cost invoices allows for more accurate cost allocation. This enables you to adjust the initial estimate based on actual invoice amounts, providing a more precise cost reflection.

Within Dynamics GP, managing landed costs involves five key aspects:

1. Landed Cost Setup: This involves setting up individual landed costs, grouping them, and assigning them to specific item and site combinations.
2. Purchase Order Landed Cost: Assigning landed cost groups to purchase orders helps track and allocate these costs early in the procurement process.
3. Receivings Landed Cost: This step involves recording landed cost groups upon receiving the goods, allowing you to capture these costs as they occur.
4. Receivings Landed Cost Apportionment: This feature enables the distribution of landed costs across an entire receipt, ensuring accurate cost allocation among received items.
5. Invoicing Landed Cost: This step involves recording invoices from landed cost vendors and matching them to the corresponding product receipts. This process ensures accurate cost tracking and reconciliation.

Let’s delve into each aspect. This post will cover the setup process, while the next one will focus on transaction entry.

Landed Cost Setup

You can access the Landed Cost setup in Dynamics GP through Cards >> Inventory >> Landed Cost.

This section allows you to define each landed cost you want to track. If you intend to match invoices for landed costs, ensure you enter a Vendor ID. For instance, in our example, you can record the actual insurance invoice from “Associated Insurance” and link it to the shipments received from your supplier for the purchased product.

You can select a cost calculation method, which determines how the landed cost estimate is calculated on the receipt. If you opt for invoice matching, the system compares the invoice amount to the initial estimate on the receipt. The difference can be revalued if the “Revalue Inventory for Cost Variance” option is selected. Otherwise, the variance is posted to the Purchase Price Variance account.

The designated GL accounts are used as follows:

• Accrued Purchase Account: This account offsets the landed cost estimate on receipts and is cleared upon invoicing or invoice matching.
• Purchase Price Variance Account: This account captures the variance between the invoice and receipt amounts when matching invoices without revaluation.

It’s important to note that no specific inventory or expense account is specified here. The system uses the item’s account, as landed costs directly impact the item’s inventory cost and value.

Landed Cost Groups

You can access Landed Cost Groups through Cards >> Inventory >> Landed Cost Groups.

Landed Cost Groups organize individual landed costs into sets. You can then assign these groups to specific item/site combinations or document line items like purchase orders and receipts. A single landed cost can belong to multiple groups.

You might create landed cost groups to represent sets of costs related to:

• Specific geographical locations
• Particular items or product categories
• Different shipping methods or processes

In our example, a landed cost group for domestic shipments is set up, including insurance and freight costs. This group can then be set as the default for specific item and site combinations.

Assigning Landed Cost Groups

Navigate to Cards >> Inventory >> Quantities/Sites to assign landed cost groups.

While optional, assigning a landed cost group to an item/site combination in this window can be beneficial. It sets the landed cost group as the default on purchase order line items, offering the flexibility to change it if needed.

This concludes the setup aspect of landed costs. The next post will cover the transactional side of this functionality.