Every unit of inventory has a cost price associated with it. When those units are shipped on sales, that cost is posted to the accounts as the cost of the sale. This is important because in order to work out your profit, you must subtract the cost of the sale from the revenue made from the sale.
The cost price of inventory is usually what that unit cost you to purchase. So for example, if you bought Product A for $1 per unit, the cost price would be set to $1.
But there may be other costs associated with purchasing items, which are not just the direct price of the product - shipping costs, for example. These costs would traditionally get posted to the accounts as one lump sum. If the associated items are sold over a longer period of time, this increase in costs can skew the profit reporting.
Landed costs are a way to spread those extraneous costs so they provide more accurate profit reporting. They allow you to record the total cost of inventory per unit for cost of sales accounting, including purchase price, freight, insurance, custom duties and other costs.
Examples of costs which you might want to include in the cost of inventory are:
- Hiring a shipping container
- The cost of traveling the container by land, air or sea
- Insuring the goods during transit
- Duties payable to get the goods into the destination country
- Taxes payable when bringing the goods into the destination country
When to allocate landed costs
The Brightpearl landed costs feature makes accounting for these costs at the right time easy, while also providing more accurate profit analysis on your sales.
To ensure these figures are reported on your sales detail, the information needs to be there at the time the item cost of sale is recorded. This means you need to allocate landed costs to your stock before inventory is shipped.
If you have fast-moving stock you may not know your exact landed cost figure until it is too late and the items have been received into stock and shipped out for a sale. It is better to estimate your landed costs and allocate it to items before they are shipped than to wait until you have the actual cost and potentially miss out on more accurate profit analysis per item.
Once you do know your actual landed cost, you will be able to make all the necessary adjustments to ensure the accounting is all correct.
Overview of the landed costs workflow
This example shows the case where you receive freight cost invoices before the inventory arrives. Note that it's also possible to assign cost invoices after you have received inventory.
- Place a purchase order with a supplier. Line items show the cost you pay the supplier.
- Items are shipped to you. While they are in transit you receive invoice(s) for freight, duty, storage etc.
- Enter cost invoices either as separate vendor invoices, or by adding lines to the original purchase order if the supplier is the same as for the products.
- Assign cost invoices to purchase order lines, distributing the cost by item value, quantity, physical volume or weight.
- Commit these extra costs. You can assign multiple costs to the same order rows.
- Receive the inventory. The asset value will include the extra costs, and the accounting will be done for you.
- Reconcile landed costs. Due to discrepancies introduced by the early estimation of landed costs, rounding, and currency calculations, you'll need to reconcile the final landed costs against the exact value of the vendor cost invoices.
The rest of the articles in this section go through the above in more detail.
Turning on the landed costs feature
- Go to Settings > Purchases > Purchase settings, and ensure that Activate landed costs is set to Yes. If you can't see this setting, contact Brightpearl support to get the feature activated for your account.
- Visit Settings > Company > Accounting: Accounts (Nominal codes) to check the landed costs account (2070 or 2270 by default).
By default, users can see the landed costs report and the additional columns on other reports such as the inventory detail.
If you want to turn off access to landed costs, you can do so from the permissions page reached via Settings > Staff / users > List staff.