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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.

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.

Set up your Accounting System

Before landed cost calculations will work in Tall Emu 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

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’ header 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.

To do this in MYOB, navigate to Accounts > Accounts List > Cost of Sales tab and select NEW.

Specify ‘Header Account’, add an account name and add a 4 digit account number. Click OK 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

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:

Name: call it Offset Landed Cost.
Active: tick this box.
Type: make sure this is set to Item.
Purchasable: tick this box.
Purchase GL Code: select your landed cost adjustment account that you created earlier.

Name: call it Variance Landed Cost.
Active: tick this box.
Type: make sure this is set to Item.
Purchasable: tick this box.
Purchase GL Code: select your landed cost variance account that you created earlier.

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

Configure Calculation Settings

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.

Enabling Landed Cost functions in Admin>General

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.

Make sure to click Update to apply the changes and enable landed cost functions in your system.

Working with Purchase Orders

A Landed Costs tab will appear once you have saved a new Purchase Order:

The Landed Costs tab on a Purchase Order allows you to add Supplier Bills

From the Landed Costs tab, you can add as many Supplier Bills as required, so that every time you receive a new invoice for landed costs, you can apply it to a Purchase Order straight away.

When you click on Add Related Supplier Bill, a new form will open to allow you to enter in the bill details.

Calculating Landed Costs

When you have entered all relevant Supplier Bills, you can use the Calculate Landed Costs button on the toolbar – you will be prompted to confirm that you want to do this.

The Calculate Landed Costs button on a Purchase Order toolbar

Confirm the choice to calculate

If you want to re-calculate costs, just press the Calculate Landed Costs button again and confirm your choice.

Change the calculation method

You can also change the calculation method on a Purchase Order by editing the record to change the choice in the Landed Cost Calculation Method field – the choice that you applied in your system Landed Cost Calculation settings will apply by default.

Amending the calculation method on a Purchase Order

Receive shipments

You can receipt shipments from your Purchase Order separately to your Landed Costs calculation.

Receipting goods on a Purchase Order

Working with Supplier Bills

When you create a new Supplier Bill, you can use the following fields to specify information that will be used to calculate Landed Costs:

Currency: this will show as the default choice you configured for the supplier in their Company record (see below for more detail) – click on the drop-down to select another currency from the list.
Exchange Rate: when this is a currency other than your system default, you will be able to edit this field and input the current exchange rate e.g. if my system default currency is AUD and the bill is in USD and $1 AUD is $0.76 USD, I would enter 0.76 into the Exchange Rate field.

Currency and exchange rate fields on a Supplier Bill

When you Save & Close the new Supplier Bill that you have created from a Purchase Order, it will automatically appear in the Purchase Order on the Landed Costs tab where you initiated it. You can quickly get back to the related Purchase Order from a Supplier Bill by clicking on the name.

Quickly get back to a related Purchase Order

Default Supplier Currency

You can specify the default currency to apply to all Purchase Orders for a supplier when you create or edit a Company record:

Set the Company Type field to Supplier – this means that supplier invoices will appear in the Supplier Bills module in your CRM.
Make sure the I buy from this company box is ticked.
Expand the Advanced Options section and choose the default Supplier Currency from the list.

Creating a new Company as a supplier

When you create Purchase Orders for a supplier, all items will be added in the default Supplier Currency that you specified in the supplier’s Company record – you will be able to edit this choice.

Working with 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.

Landed Cost fields on a Product record

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