Landed Cost Reference
Technical details on allocation methods, workflow states, and accounting integration.
Allocation Methods
The allocation method determines how the total cost (e.g., $1,000 freight) is distributed across multiple products in a shipment.
| Method | How it Works | Best Used For |
|---|---|---|
| By Quantity | Divides cost equally per unit. | Items of similar size and weight. |
| By Value | Distributes proportionally to product price. | High-value items vs. low-value fillers. |
| By Weight | Distributes based on physical weight. | Freight charges (which are weight-based). |
| By Volume | Distributes based on space occupied. | Container shipping (where space is the limit). |
Workflow States
| State | Description | Accounting Impact |
|---|---|---|
| Draft | Record is being prepared. | None. |
| Validated | Costs are applied to inventory. | Inventory Asset increases; Stock Input increases. |
| Cancelled | Record is voided. | Reversing entries created. |
Accounting Entries
When a landed cost is Validated, the following entry is generated:
| Account | Debit (Increase) | Credit (Decrease) |
|---|---|---|
| Inventory Asset | $ Amount | — |
| Stock Input (Accrual) | — | $ Amount |
Note: The Stock Input account is cleared when you post the actual Vendor Bill from the freight/insurance provider.
Glossary
- Landed Cost: The total price of a product once it has arrived at the buyer's door.
- FOB (Free on Board): Determines at what point the buyer becomes responsible for costs.
- DDP (Delivered Duty Paid): Seller covers all landed costs.
- Allocation: The mathematical process of splitting one cost across many items.