72752326 Landed Cost Information

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How can I make sure that the proper amount of freight costs to be allocated to each inventory item received iscalculated?Some businesses may be required to include estimated landed costs or freight costs in the cost of inventory.Others may want to factor their estimated landed costs and freight costs into the value of their inventory, so thatgross profit can be more accurately stated. The Purchase Order module provides four allocation methods.These methods are used to allocate estimated landed costs and freight costs to inventory. The allocationmethods available are Quantity, Weight, and Cost. In addition, the Volume allocation method is available forlanded costs.

To allocate landed costs to inventory, the following conditions must be met.

The Inventory Management module must be integrated with Purchase Order.

Landed cost types must be set up in Landed Cost Type Maintenance.

Each landed cost type must be assigned an expense account number. The Landed Cost feature allows youto enter estimated landed costs in Receipt of Goods Entry, thereby allocating costs to inventory.

The following examples illustrate general ledger posting entries for landed cost items.

Example 1 - Posting for a receipt of goods entry with landed cost to be allocated

The following entry illustrates the posting for a receipt of goods entry with a landed cost entry to beallocated.

The amount posted to the Inventory account consists of the item cost plus the allocated landed cost. Theamount posted to the purchases clearing account or accounts payable account (depending on whetherthe receipt of goods has an invoice entered), is the amount in Receipt of Goods Entry. The expenseaccount selected for the landed cost type in Landed Cost Type Maintenance should be a contra-accountused exclusively for allocated landed costs. The amount posted to the expense account is the totallanded cost entered in Receipt of Goods Entry. For more information, see Account Maintenance.

Example 2 - Posting for a receipt of goods entry with a landed cost entry to be allocated for standardcost items

The following entry illustrates the posting for a receipt of goods entry with a landed cost entry to beallocated for standard cost items.

Example 3 - Posting for the sale of inventory items (normal processing)

The following entry illustrates the posting for the sale of inventory items (normal processing).

G/L Account Debit Credit

Inventory 1000.00

Purchases Clearing or Accounts Payable 900.00

Expense _______ 100.00

1000.00 1000.00


Inventory 900.00

Purchases Clearing or Accounts Payable 900.00

Expense 100.00

Purchase Order Variance Account 100.00 _______

1000.00 1000.00


Landed Cost and Freight FAQs

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Page 1 of 4Landed Cost and Freight FAQs

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The cost of goods sold account consists of the item cost plus the allocated landed cost. The inventoryaccount consists of the item cost plus the landed cost.

The following examples illustrate the effects of freight allocation on general ledger postings. A typicalgeneral ledger posting for a $300.00 invoice processed in Receipt of Goods Entry is shown.

Example 4 - Receipt of goods and receipt of invoice are processed at the same time without allocatinglanded cost

The following entry illustrates that the receipt of goods and receipt of invoice are processed at the sametime without allocating landed cost.

Example 5 - Landed and freight costs are allocated to inventory using the Cost factoring method

The following entry illustrates the same invoice when the landed and freight costs are allocated toinventory using the Cost factoring method. In this situation, the vendor for the purchase order is not thesame as the vendor for landed cost.

NOTE There may be situations where the vendor for the purchase order is the same for both the receipt ofgoods and landed cost.

Example 6 - Processing of freight invoice in Accounts Payable

The following entry illustrates the processing of the freight invoice in Accounts Payable.

One of the allocation methods (Weight, Cost, Quantity, or Volume) must be assigned to each landed costtype.

When the conditions have been met, Receipt of Goods Entry (with an invoice number entered) calculates theproper amount of freight costs to allocate to each inventory item received. Daily Receipt Registers/Updateincludes freight when posting to General Ledger to the appropriate inventory account in lieu of a posting to thefreight expense account.

How do I set up options for landed cost and freight processing?

In Purchase Order Options, the Allocate Freight on a Line Item Basis field is available only if the Allows Entry ofLanded Costs check box is cleared. The system defaults to a landed cost type of FRGHT that is used forallocation of freight based on the allocation method specified. If the Automatic Update check box is selected inLanded Cost Type Maintenance for FRGHT and freight plus prepaid freight from the purchase order or a freightamount is entered in Receipt of Goods Entry, the Landed Cost button will display automatically in Receipt of

Cost of Goods Sold 1000.00

Inventory _______ 1000.00

1000.00 1000.00


Item Receipt (Product A) Inventory - Product A 50.00

Item Receipt (Product B) Inventory Product B 150.00

Freight Amount Freight Expense 100.00

Invoice Amount Accounts Payable ______ 300.00

300.00 300.00




Landed Cost Freight Expense 100.00


300.00 300.00


Landed Cost Freight Expense 100.00


100.00 100.00




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Goods Entry. For more information, see Purchase Order Options - Fields.

If the Include Allocated Cost in Default Unit Cost check box is selected in Purchase Order Options, the total lastcost (which includes any allocated costs) is used as the default in Purchase Order Entry, Receipt of GoodsEntry, and Receipt of Invoice Entry.

Any inventory item that is subject to landed cost allocation should have the Allocate Landed Cost check boxselected in Item Maintenance. (For more information, see Item Maintenance - Fields.) Any miscellaneouscharge code that is subject to landed cost allocation should have the Allocate Landed Cost check box selectedin Miscellaneous Item Maintenance. (For more information, see Miscellaneous Item Maintenance - fields.) If thischeck box is selected, the Landed Cost check box in Purchase Order Entry and Receipt of Goods Entry will beselected by default, but can be changed.

When using the Weight or Volume allocation method, the weight and volume should be entered at the Weightand Volume fields in Item Maintenance. Weight and volume cannot be entered for special or miscellaneouscharge codes; therefore, special and miscellaneous charge codes are not included in any landed costallocations that use an allocation method of Weight or Volume.

In Receipt of Goods Entry, with or without an invoice, you can enter as many landed cost types and amounts asneeded by using the Landed Cost feature. If the Automatic Update check box is selected for the FRGHT costtype in Landed Cost Type Maintenance, the freight amount appears automatically in the Landed Cost Entrywindow in Receipt of Goods Entry.

NOTEWeight and volume amounts in Item Maintenance should be entered as numbers only, without adescription (for example, enter 35 instead of 35 lbs).

The Daily Receipts Register prints all landed cost types and amounts entered in Receipt of Goods Entry if thePrint Landed Cost Allocation Detail on Register check box is selected in Purchase Order Options.

The Daily Receipts Register/Update posts the allocated landed costs to the item's cost in inventory and theexpense account entered for the Cost Type in Landed Cost Type Maintenance. In addition, the receipt historywill be updated with the landed cost information and can then be printed on the Receipt History Report.

WARNINGChanging the allocation method or general ledger account number in Landed Cost Type Maintenancemay cause difficulty when attempting to reconcile the general ledger.

Can freight expenses be paid before the receipt of inventory and the corresponding invoice?

Yes, freight expenses can be paid before the receipt of inventory and the corresponding invoice. Prepaymentsare usually recorded in Manual Check and Payment Entry, Invoice Payment Selection, Transaction JournalEntry, or General Journal Entry. These prepaid freight expenses can be allocated to inventory. In addition to

meeting the conditions listed for the allocation of standard freight, you must also assign an account number atthe Prepaid Freight Expense Account field in Purchase Order Options. This account is credited during theReceipt of Goods/Invoice Data Entry update. The original posting recorded in the Accounts Payable or GeneralLedger module is then reversed.

This example illustrates a $312.00 invoice processed in Receipt of Goods Entry, with $50.00 of the freightexpense prepaid. This posting reverses an entry to prepaid freight that was originally recorded in the AccountsPayable or General Ledger module.

For more information, see:

Landed Cost Type Maintenance

Allocate Freight Costs to Inventory Without Landed Costs

Why was the landed cost not applied to my miscellaneous charges?

Landed cost does not apply to charges because there is no cost.

Why is the amount of my landed cost showing on the Daily Transaction Register as a credit, and not a debit?




Invoice Amount Accounts Payable 250.00

Prepaid Freight Amount Prepaid Freight Expense ______ 50.00

300.00 300.00




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Landed cost type accounts are offset accounts. The amount of landed cost is allocated to items and is posted tothe inventory account (or special item/PO variance account), with the offset amount being to the landed costtype's general ledger account.

I did not create the FRGHT landed cost type. How was it created?

The FRGHT landed cost type is automatically created when the Purchase Order module is activated, and canbe maintained but not deleted.

The landed cost FRGHT was allocated to my items when I posted my receipt of goods without an invoice, butI had cleared the Allow Entry of Sales Tax and Freight Without an Invoice check box in Purchase OrderOptions. What happened?

Selecting or clearing the Allow Entry of Sales Tax and Freight Without an Invoice check box in Purchase OrderOptions does not apply to landed cost. It applies only to sales tax and freight (allocated or not).

If there is freight on the purchase order and you have selected the Automatic Update check box for the FRGHTlanded cost type in Landed Cost Type Maintenance, the freight amount on the purchase order will automaticallywrite to the FRGHT landed cost type on the Landed Cost Entry window in Receipt of Goods Entry.

The Freight Amount field in Receipt of Goods Entry for receipts without an invoice is available only if the AllowEntry of Sales Tax and Freight Without an Invoice check box is selected in Purchase Order Entry.

The new unit cost on the Daily Receipts Register for the standard item shows one amount, but was posted to

inventory for a different amount. Why?

The Daily Receipt Register calculates a new unit cost for the standard item to include allocated costs, but poststo inventory at the standard cost. An adjustment is made to the PO variance adjustment account for thedifference between the standard cost and the new unit cost.


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72752326 Landed Cost Information

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