Scenario:
The current NetSuite account does not have the landed cost templates set up in it. Since the Financial Year end is approaching, the landed cost for the Item Receipts that have missed landed cost need to be updated using a workaround approach.
Transfer Order approach
Through this method, we would transfer the quantity from our original location to an adjustment location. Then a reversal of this process would be done whereby the quantity would be transferred back to the original location. However, at the time of reversal, the Item receipt would include the landed cost. By doing so, we are associating the landed cost to the entire quantity available of the inventory item and not just a single quantity. Thereby, when we perform future transactions like Sales Orders, the landed cost factor would be associated accurately to the inventory item.
Detailed Transfer Order approach
- Create a dummy location with no parent location to be used as an adjustment location for inventory transfer.
- Transfer the entire quantity of the inventory item to the adjustment location. Do not provide any transfer cost.
- When we create a Transfer Order, we would need to perform subsequent Item Fulfilment and Item receipt for the same.
- Subsequently, create another Transfer Order to reverse the previous Transfer Order. In this transaction, the quantity would be transferred back to the original location [In this example, Boston].
- Fulfil the order.
- Receive the order. At the time of Item Receipt, include the landed cost in the transaction.
- The Inventory Item will display the accurate quantity and value now.
- On creation of a Sales Order and Item Fulfilment, the GL impact would display accurate amount. Furthermore, the inventory record would also show the current accurate value with the landed cost associated with all the quantity of the inventory item.
GL Impact of transactions associated with the Transfer Order approach
- Transfer Order from Original location to Adjustment Location
- Reversal Transfer Order from adjustment location to original location
- Item Fulfilment of a subsequent Sales Order
GL Impact of landed cost associated with an existing Transfer Order
In order to illustrate the impact of association of landed cost in the General Ledger, we have taken the example of TONIPA00001 in the Sandbox account.
At the time of Receipt of this order, landed cost was associated with the transaction. [IR00793]
The GL Impact of the Item Receipt would be:
As shown above, the landed cost affects the Inventory account [1500-001 Inventory : Inventory – SOH] and the landed cost COGS accounts [5100-002 Cost of sales : Costs of Goods Sold : COGS-Freight, duties, taxes and others and 5100-001 Cost of sales : Costs of Goods Sold : COGS-Product cost] for the location configured as the ‘To Location’ in the IR Item line.
The Quantity on Hand would display the quantity entered in the Transfer Order and the Value field would display the Total value including the landed cost factor.
Note: This is just to show the GL impact of landed cost in transaction. For the workaround, we would need to adjust the inventory quantity with the quantity on hand for the particular location. This is done to associate the entire landed cost factor to all the available quantity.
Remarks regarding the Transfer Order approach
The Transfer Order approach is preferable in scenarios where the landed cost have not been associated with any item Receipt or if it has been in practice after a particular date enabling us to distinguish the item quantity with and without landed costs.
Using the Transfer Order approach, the landed cost is associated with the account, and the quantity is perceived to be the location quantity on hand. When an Item Receipt is associated with landed cost, the system assumes the landed cost to be accredited to the entire quantity on hand for that location. Moreover, when the landed cost is charged on the body level instead of the item level, the landed cost thereby does not have any direct association with the Inventory item or its quantity. Hence, when we use the transfer Order approach, the landed cost associated with the dummy TO is averaged for the entire quantity on hand as on that particular date.
Since there are instances when a particular date has transactions with and without landed cost, it is not possible to distinguish those transactions and associate the landed cost with only the missing landed cost transactions. Using the Transfer approach, we can assume the entire landed cost minus the already associated cost as the adjustment landed cost to be applied, and then use the same to associate with the entire quantity on hand so that the stock as on the date of the Transfer Order would have the averaged associated landed cost.
As an example, if there are 10,000 Item Receipts among which 2,000 have associated landed cost, it is not possible to distinguish these 2000 quantity from the Item quantity on hand. Moreover, since the landed cost is being associated on body-level, the landed cost of the 2000 quantity is considered as the landed cost of the entire 10,000 on hand stock in the Item records by the system. In other words, the landed cost already applied is associated with the COGS account and not on the basis of item quantity. Hence, using the Transfer Order approach we can associate the remaining landed cost to be associated to the entire quantity on hand thereby averaging the total landed cost to all the quantity on hand.