In NetSuite, “Landing Cost” (or “Landed Cost”) refers to the total cost of acquiring inventory, including the purchase price and any additional costs incurred to bring the inventory to its final location. These additional costs can include shipping, handling, duties, taxes, insurance, and other related expenses. Accurately calculating landed costs is essential for determining the true cost of goods sold (COGS) and for pricing, profitability analysis, and inventory valuation.
Key Components of Landing Costs
- Purchase Price: The actual cost of the goods purchased from the supplier.
- Shipping Costs: Freight charges paid to transport the goods from the supplier to the company’s warehouse or distribution center.
- Handling Costs: Expenses related to handling the goods, such as loading, unloading, and warehousing.
- Duties and Taxes: Import duties, tariffs, and taxes imposed by customs authorities.
- Insurance: Costs of insuring the goods during transit.
- Other Fees: Any additional costs, such as brokerage fees, inspection fees, and compliance costs.
Setting Up Landed Costs in NetSuite
- Enable Landed Cost Feature:
- Go to Setup > Company > Enable Features.
- Under the Items & Inventory subtab, check the Landed Cost box and save.
- Create Landed Cost Categories:
- Go to Setup > Accounting > Landed Cost Categories > New.
- Define categories for different types of landed costs, such as “Freight,” “Customs Duty,” “Insurance,” etc.
- Assign Landed Costs to Items:
- Landed costs can be assigned to items during purchase order receipt, vendor bill entry, or inventory adjustment.
Example Workflow
1. Purchase Order Creation
- Create a purchase order for items from a supplier.
2. Receiving Inventory
- Receive the inventory items against the purchase order.
3. Adding Landed Costs
- During the receipt process or later, add landed costs using the Landed Costs subtab on the receipt or vendor bill.
- Allocate the landed costs to the items based on a chosen allocation method (e.g., by weight, value, quantity, or manually).
4. Vendor Bill Entry
- Enter the vendor bill for the landed costs, associating it with the appropriate landed cost categories.
Allocation Methods
NetSuite provides different methods for allocating landed costs across items:
- By Weight: Allocates costs based on the weight of each item.
- By Value: Allocates costs based on the value (cost) of each item.
- By Quantity: Allocates costs based on the quantity of each item.
- Manual: Allows for manual distribution of costs.
Benefits of Using Landed Costs in NetSuite
- Accurate Costing: Provides a true reflection of the cost of inventory, including all additional expenses incurred.
- Improved Pricing: Helps in setting more accurate product prices by considering all costs involved.
- Better Profitability Analysis: Allows for a more accurate analysis of profitability by factoring in all costs associated with acquiring and bringing inventory to its final location.
- Enhanced Inventory Valuation: Ensures inventory is valued correctly on financial statements, improving financial accuracy and compliance.
By incorporating landed costs into inventory management, NetSuite helps businesses gain a more accurate understanding of their true inventory costs, leading to better financial decision-making and improved profitability.