Purchase Orders and Landed Costs

This article covers landed cost management in the context of purchase orders within Stock&Buy.

Landed costs are an important expense which accounts for the stock on hand value and is an important constituent of the cost of goods purchased. The cost of goods (or any asset) includes all costs necessary to get a product from your supplier to your customer’s hands. In Stock&Buy, these costs are referred to as Landed Costs.

Stock&Buy offers a simple and a more advanced procedure to handle landed costs.

Basic landed cost management

The basic landed cost management is a simplified workflow to capture extra cost items. These cost items usually come in the same order / invoice as the products ordered from your supplier.

Create landed costs

To add landed costs when receiving goods on a purchase order:

  1. Open or create the purchase order which holds the landed costs
  2. On the main order view, click on New landed cost
  3. Type in the name, quantity, discount (if any) and the price of the landed cost. Stock&Buy will automatically suggest default landed costs. You can override this behavior by entering a custom name for the landed cost 
Add landed cost to purchase order.

You can add landed costs at any stage of the purchase order life cycle as long as the order is not fully received. 

Allocating landed costs

The landed costs are applied to the purchased goods when the order is fully received. These costs are factored into the purchased goods cost following a weighted distribution. The calculations are performed as follow:

  • Let Total_Landed_Costs be the total landed costs for the PO. This is calculated by adding all separate landed costs part of the PO.
  • Let Order_Units_Count be the total number of units received in the PO.
  • Let Avg_Landed_Cost = Total_Landed_Costs / Order_Units_Count. This represents the average distributed cost per unit. 

For each line item in the purchase order:

  • Let Current_Value be the total stock value for the order item. Current_value = stock quantity * product moving average cost (MAC)
  • Let Purchase_Value be the stock value purchased. Purchase_Value = (Purchase price * Purchased quantity) – Tax.
  • Let True_Purchase_Value = Purchase_Value + (Avg_Landed_Cost * Purchased quantity)
  • The MAC value of the product is updated as follow:  MAC =  (Current_Value + True_Purchase_Value) / Total_stock

Landed costs in practice

Let’s illustrate the above math with an example. Let’s consider the following purchase order:

Order line itemCurrent Moving Average CostStock quantityReceived QuantityPurchase price per unit
Green widget$10205$12
Red widget$9138$15
Shipping (landed cost)  1$100
Storage (landed cost)  1$150
  • Total_Landed_Costs = $250
  • Order_Units_Count = 13
  • Avg_Landed_Cost = $250/13 = $19,23

The landed costs will factor into the green widget as follow:

  • Current_Value = 20 * $10 = $200
  • Purchase_Value = 5 * $12 = $60
  • True_Purchase_Value = $60 + ($19,23 * 5) = $156,15
  • MAC = ($200 + $156,15) / 25 = $14,24

Notice the considerable jump of the MAC value from $10 to $14,24 after the landed costs have been factored in.

The red widget:

  • Current_Value = 13 * $9 = $117
  • Purchase_Value = 8 * $15 = $120
  • True_Purchase_Value = $120 + ($19,23 * 8) = $273,84
  • MAC = ($117 + $273,84) / 21 = $18,61

Just like the green widget, the red widget’s MAC value has jumped from $9 to $18,61

Advanced landed cost management

The advanced landed cost management is a lot more accurate than the basic method outlined above in that it captures much more information about the landed cost expenses. Furthermore, this method allows you to allocate cost across one or more purchase orders.

Freight and extra costs are distributed by value, so the more expensive items receive a larger portion of the freight cost. Use the Transactions report to view the cost distribution across the purchased products.

This method is highly recommended when capturing expenses such as Import costs, freight fees and duty. To apply Import Costs to a one purchase order or more:

  1. Create a Purchase Order for your products.
  2. Create additional Purchase Orders to match invoices you will receive from your clearance agent, freight forwarder or local customs office.
  3. Link the purchase order create in step 2 to your product purchase orders created in step 1.
  4. Receive the order created in step 2 to allocate and distribute its total value among line items of your product purchases created in step 1.

Create a Purchase Order for your Products

This step is simple and straight forward. Just follow the instructions detailed here to create a purchase order for your products.

Create a Purchase Order for Extra Costs

This step is similar to the the previous one. This purchase order usually reflects the invoice you receive from your clearance agent, freight forwarder or local customs office. You can add expenses either as order line items (if you want to track the item as a product) or custom items. In the remainder of this section, this purchase order will be referred to as Extra cost purchase order.

Link the orders above

This is the most important step of the workflow where you need to link the extra cost purchase order to the products purchase orders created in step 1. To link the extra cost purchase order:

  1. Open the Extra cost purchase order
  2. Click on “Related Orders” tab
  3. Click “Link to Order” to open the “Add / Edit Link” dialog
  4. Look up the product purchase orders to link to (these are the ones created in step 1)
  5. Set Link type to “Extra Landed Cost
  6. Enter a comment if required and hit “Save & close

You can link as many purchase orders as you like. These purchase orders can be in any state.

The linked purchase orders will be visible on the “Related Orders” tab

Receive the Extra Cost order

Receive the Extra cost purchase order to proportionally allocate the landed costs across all the product purchases.

Freight and extra costs are distributed by value, so the more expensive items receive a larger portion of the freight cost. Use the Transactions report to view the cost distribution across the purchased products.

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