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Calculating Landed Costs

A Landed Cost factors in a range of costs associated with a product or shipment (e.g. shipping costs, taxes, tariffs, currency conversion, customs duties, handling fees etc.) to provide the true total cost of an imported product or shipment by the time it reaches you.

The purpose of calculating the landed costs is to know your true cost price of your inventory, including costs of getting it into the country and making sure this is correctly reflected in your accounts.

While most accounting systems cannot perform this calculation – this page shows you how to calculate Landed Costs in your CRM, and automatically update MYOB or Xero.

1. Set up your Accounting System

Before landed cost calculations will work in the CRM, you need to set up your accounting software correctly.

What we’re going to be doing is creating a landed cost adjustment account on the GL so we can track landed cost adjustments we need to make to Purchases and Bills.

We’re going to add either an estimate of your landed costs, or the actual landed cost to your inventory items, and balance that against the actual supplier bills. This will all be handled automatically, and can be done based on:

Dollar Value
Weight
Volume

2. Set up CRM for Landed Costs

Once you have enabled Landed Costs in CRM, you should also refer to our detailed guide on how to work with landed costs for purchasing.

Note that if you are using Weight or Volume for your calculation, you will need to ensure you have that information entered for your inventory in Product Features.

Set up MYOB AccountRight

If you do not already have accounts set up for landed costs, you will need to set up two ‘Cost of Sales’ accounts in MYOB for use in your CRM landed cost configuration settings:

Landed Cost Adjustment Item
Landed Cost Variance Item

We recommend that you name these accounts so that they are easily identifiable. We also recommend that you check with your accountant or bookkeeper as to how to set these accounts up.

In MYOB, navigate to Accounting > Chart Of Accounts.

Select the Cost Of Sales tab and then click on Create Account.

This will open up a new account form where you can input the following details:

Click on “Detail Account” as the Account Category.
Select “Cost Of Sales” as the Account Type.
Add an Account Name – we recommend “Landed Cost Adjustment Account” and “Landed Cost Variance Item” for the 2 required accounts.
Add a 4-digit account number (this can be any number of your choosing).
Leave the Account Balance as $0.
Select the “GST Free (FRE)” option for Tax Rate.
Click on Save to create the new account.

You need to repeat this step to create the 2nd landed cost account so that you have two – one for Landed Cost Adjustment Item and one for Landed Cost Variance Item.

You can now direct your CRM to use these accounts in your landed cost configuration settings.

Set up Xero

If you do not already have accounts set up for landed costs, you will need to set up two sales accounts in Xero for use in your CRM landed cost configuration settings:

Landed Cost Adjustment Item
Landed Cost Variance Item

We recommend that you name these accounts so that they are easily identifiable. We also recommend that you check with your accountant or bookkeeper as to how to set these accounts up.

To do this in Xero, navigate to Accounting>Advanced>Chart of accounts and select NEW.

Specify a ‘Sales’ account type, add a unique account number, add an account name and then click Save to create the new account.
You need to repeat this step to create the 2nd landed cost account so that you have two – one for Landed Cost Adjustment Item and one for Landed Cost Variance Item.
You can now direct your CRM to use these accounts in your landed cost configuration settings.

Set up Products to manage landed costs in CRM

Firstly, you will need to create Products for inventory and variance items that are not stock tracked and have the GL Code as your landed cost accounts that you set up in the previous step.

From the main menu, navigate to Inventory > Products and click to add a new Product. In the new Product record, make sure you have the following fields completed and no other options ticked, as per the examples for each Product below.

Create the offset item

Name: call it Offset Landed Cost (copy & paste the same name for the MYOB/Xero Name field).
Part Number: call it OLC-01.
Type: make sure this is set to Item.
Active: tick this box.
Purchasable: tick this box.
Purchase GL Code: select your landed cost adjustment account that you created earlier.
Save & Close the record.

Creating the Offset Product

Create the variance item

Name: call it Variance Landed Cost (copy & paste the same name for the MYOB/Xero Name field).
Part Number: call it VLC-01.
Type: make sure this is set to Item.
Active: tick this box.
Purchasable: tick this box.
Purchase GL Code: select your landed cost variance account that you created earlier.
Save & Close the record.

Creating the Variance Product

Create items for other costs incurred when importing goods

When you’re adding Supplier Bills to Purchase Orders, you’ll select from a list of Products already in your system i.e. if you don’t already have them, you will need to create new Products to cover items like freight costs, customs charges, handling fees or tariffs so that you can select the appropriate item and add it to a Supplier Bill.

When you create or want to apply these Products, you’ll need to ensure that the Purchasable box is ticked in the Product record so that the items appear for selection in Supplier Bills.

You will also need to specify the landed cost adjustment account you’ve set up in your accounting system as the Purchase GL code.

Making a Product purchasable

Enable Landed Costs in CRM

Once you have completed the steps above to set up your Products, you are ready to configure the calculation settings.

To access these settings, go to Admin > General and scroll to the bottom of the page to Landed Cost Calculation and tick the Landed Cost Management Enabled box to enable landed cost functions in your system – this will make the additional setting fields visible.

You can then configure the following settings:

Landed Cost Adjustment Item – the non-inventory tracked item you created in the previous step.
Landed Cost Variance Item – the non-inventory tracked item you created in the previous step.
Landed Cost Calculation Basis – you can select the default method your CRM will use to apportion costs – Manual, Value ($), Volume or Weight.
Cost Price Calculation Basis – choose how the Cost Price in your Product record will be updated i.e. according to the Standard Cost, Last Landed Cost or Average Landed Cost.

Cost Price field on a Product

Make sure to click Save at the top of the page to apply the changes and enable landed cost functions in your system.

Landed cost fields on Products

When you enable Landed Costs in your system, new fields will appear on your Product records that show the Last Landed Cost Price and Average Landed Cost Price for the item.

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