Landed cost is often an issue to deal with when setting up a system for a company that does a lot of importing. The main aim here is making sure the costs add into the value of inventory instead of just expensing these additional charges. It’s often a troublesome set of events because you purchase goods and there are certain fees and charges that you know and can calculate when the purchase is placed but then there are other fees that might change or you don’t know the value of until you get the invoice from the shipper, freight forwarder, government etc.
Then there is often the issue of timing. You place a purchase order, good arrive. Then you might not get an invoice for freight or duties for a month or more after the receipt of the goods. This is then difficult because you might have sold those goods already.
In heavy import business there are some good ISV’s that provide landed costs solution on top of Dynamics AX. These solutions are great if you also want to add optional handling of shipments for example tracking sea shipment with containers numbers and splitting those one containers costs against multiple purchases. If you have the occasional import you could work around with some setup. Now this may not be optimal for some based on handling estimated changes and what to do with the adjustment and review of the actual charges so it’s something you will have to work through in your business.
It’s also worth noting this example is worked through without using the transportation module that was introduced in AX2012 R3 and is in D365. This functionality could be added to the process to add extra invoice handling processes. It still works with the charge codes so it is a variation that I’ll cover in a follow-up post.
Common charges that come with shipping that might need to be considered in you landed cost evaluation for your inventory. These are just a sample often different goods will have different charges and you should also evaluate accounting standards for what you can and can’t include in the value of inventory and what should just be expensed.
- Freight. This can be a range of costs to move the goods. It will depend on your incoterms. For example if you are paying for the freight then it’s your additional cost beyond the purchase price. If they shipper is paying the costs then it’s already included in your purchase price as the supplier would have calculated their price to include it.
- Taxes and Duties. You maybe be charge duties or taxes based on certain types of goods or based on the quantity or amount of the goods. This is often when you are moving goods cross countries. For example there may be no duty for an inbound shipment if the goods are under $800 but if over that you have to pay duties. Each country will have a schedule based on source country, commodity type etc.
- Handling. If you use a freight forwarder to help you import goods. Then they will charge as service or handling fee for the shipments. This could be by shipment or it could be a general monthly charge if you do a lot of work with them. This is often a difficult one to attribute across many goods that might be included in one shipment and you get monthly fees.
- Insurance. Often is you are organizing the import of you goods you might want to include insurance if there is an accident in moving the goods.
- Bank Fees. Often with international shipments you need to organize letters of credit or some other instrument to handle payment to the supplier when goods are pasted to the shipping company. Sometimes the bank might charge a fee for this service.
Let’s set some goals here to constrain the scope of what would could achieve with a simple landed cost setup.
- Update inventory value. The main goal is that we need to get the additional costs added to the item value. If we are putting inventory value on then this is an increase in the value of the asset coming onto the books.
- Estimated Costs. A lot of time we know what the costs will be but we don’t have the invoice for them yet. So because we added the asset value we need to add a liability to balance the future bill that we’ll have to pay.
- Actual Costs. When we get the invoice from the shipping company, freight forwarder, government etc then we’ll need to pay them so we can also reduce the liability.
- Adjustment. Now that we have paid we should reconcile what we originally estimated and put into inventory value with what we actually paid out. Given we are trying to do a simple landed cost which is where this is manual work.
In this example we are making use of a few setups.
- Charge Codes. The charge codes do the work in accumulating the charges and being generated on the lines.
- GL Accounts. A few additional accounts to post the liability of the charges.
- Categories. The expenses for the charges are posted against categories when we get the invoices from the suppliers.
- Vendor. Vendor that you expect to receive invoices for payment of inbound costs.
The attached video gives a walkthrough of how it could fit together.
AX2012 R3 CU11
In a follow-up we’ll have a look at and adjustment process.