What is Landed cost?

Landed costs are all costs added to the purchase amount (the amount we need to pay to the supplier directly) and together they present the total cost of purchased goods. We can also say that these are the costs we have(paying to other suppliers) until goods are in our possession.


The best example is shipping cost, e.g. the price of the goods is 10$, but shipping is 2$, our total cost is 12$. In this example shipping cost is the landed cost.

In accounting, Landed cost is not a cost that is recognized when incurred, instead it is an integral part of the “Cost of goods sold”. ie. In accounting, it is only recognized when goods are sold or consumed as material.

Note: In accounting, landed cost is also called (or it is part of) Additional costs or Additional expenses of the product.

Components of Landed cost

In complex procurement processes (eg international trade), landed costs may include other expenses than shipping.

Biggest expenses in domestic trade are:

  • Shipping cost
  • Handling cost
  • Non deductible VAT

The most common expenses in international trade are:

Importance of Landed cost

It is commonly used for calculating profitability.

The most common reasons are:

  • Estimated profit calculation
  • “End price” calculation (margin / markup calculation)
  • Precise calculation of Cost of Goods Sold (COGS) in accounting
  • Material / finished product actual cost
  • Input VAT calculation

One of the examples comes from Construction industries, where the price of concrete aggregate in a warehouse or concrete pit is initially low and might increase a couple of times until it reaches the construction site. The price of transport by truck is Landed cost. To make a calculation realistic, the actual cost includes the cost of the concrete aggregate and the price of its transport.

Landed cost and impact on inventory

Landed cost will increase Stock price in inventory. The stock price is calculated by adding the landed cost to the purchase price.

For example: 100$ (supplier / purchase price) + 10$(shipping) + 11$ (customs and import duties) = 121$ (stock price). When sold at a price of 200$, cost of goods sold (COGS) would be 121$ and profit 79$.

Note: If you have a larger quantity/value on the item, the new stock price on the item will be calculated using the inventory costing method(eg FIFO or Weighted average).

There are also cases when the Landed cost is acting as “Cost of service”. This occurs when the value is small and the impact on inventory is almost null. In that case, the Landed cost is immediate cost and it is not included in the stock price.

Example: 10,000$ (supplier / purchase price) + $5 (shipping) = $10,000 (stock price) + $5 (cost of service).

Distribution of Landed cost

When there is only one item on a Purchase Order, landed cost distribution is clear, but if there are more, it must be distributed by some method.

The most common methods are:

  • According to purchase amount – Item that has the highest value is the most allocated. This is the most common method.
  • According to weight – It is highly distributed on item with largest mass. This is commonly used with container transportation.
  • According to duty rate – Item with a highest customs rate is affected the most. Used when importing goods.
  • According to quantity – Item with the largest quantity is affected the most. used when there are no other parameters to allocate.
  • According to coefficient – Each item has a certain coefficient, the one with highest coefficient is mostly allocated. This is custom method where each company uses their own logic for landing cost allocation.

In some cases, 2 methods have to be combined. For example: when importing goods, we assign custom duties to the “Duty rate” method, while we assign shipping via the “Purchase amount” method.

Note: Landed cost is used only on Inventory and Non-inventory types of items.

Landed cost in ERPAG

The calculation of landed cost is fully supported in ERPAG. Depending on the complexity, the procedures to record and manipulate in ERPAG are also different.

purchase order landing cost

In this blog, we will try to explain Landed Costs in different scenarios.

Domestic trade and Shipping cost

The simplest case is when you have a domestic supplier who charges you for shipping(i.e. when it is a separate line on the invoice/sales order). The amount for the shipping fee is the Landed cost in this case.

Landed cost Type selection

In Purchase Order, we select Landed cost type as “Supplier”, because that is the amount he charges us additionally. After that, we enter the shipping amount without taxes.

landing cost per item

The entered amount will be distributed to each item according to the “Purchase amount” method, i.e. the item with the highest value will get the highest price for landing cost.

Shipping in the USA (and in places where the Sales tax system is applied) in most cases is not taxable, while in countries that are applying the Valued Added Tax (VAT) system, tax on shipping is usually taxable. Since the tax on shipping is an integral part of supplier invoice, that amount is entered from the document in the “Input tax” panel. To enter “Tax calculation” it has to be set to “Manual entry”.

Tax calculation

In appropriate field we enter the amount of total calculated tax. In our example tax amount for shipping is 3.25$ ( 25$ * 13%) , tax on items is 9.75$, which makes total tax amount of 13$ (75$ items + 25$ shipping) *13% = 13$).

Non deductible VAT and Landed cost

With Value added tax system (and with the “Use tax” system), in some cases calculated input tax cannot be deducted. Generally, that depends on national tax regulations and type of goods being procured. In that case, input tax amount can be “Tax expense” or to be added in inventory as “Landed cost”.

PO deductible GST selection

In Purchase Order we are setting “Deductible” to “NO – Inventory / landed cost”.

Landing cost and input VAT

Then, the input VAT amount will be added to the Landed cost distribution. On our example: 25$ (Shipping) + 13$ (Input VAT) = 38$ (Total landed cost)

Customs import duties and Landed cost

Regarding importing goods (when customs clearance is done directly and not through an intermediary) the cost of calculated custom import duties is added to Landed cost.

Customs duty

Note: “Custom duty” entry field will be enabled only if “International trade” is selected on the supplier.

Customs duty added to landed cost

In order to make tracking easier, we implemented a “Custom duty” special column. For example: 1000$ (purchase amount) + 50$ (Custom duty) + 50$ (Shipping) = 1100$ (Stock amount).

In the above example, all items have the same “Duty rates” (5%). And if items have different Duty rate, distribution of Custom duty amount will be based on duty rate ie. The item with the highest percentage of customs duties will be the most distributed one.

Duty rate and customs duty columns

Note: When importing, it often happens that custom authorities during the calculation of import duties do not apply the duty rate directly to the purchase value of the goods, instead, they add some fees and/or include it to shipping cost. So in practice, there are always some differences between directly applying the rate and their calculation. Such differences are allocated according to the “Duty rate” method.

Customs duty allocation

Distribution of other landing costs (shipping for example) is done by the “Purchase amount” method. In this case, due to calculation accuracy, we will apply a combination of two methods.

Note: Duty rate is determined for each item separately in the “Additional info” panel.

Duty rate - Additional info panel

Third party supplier for Landed cost

Previous examples showed us scenarios when the supplier charges us a landing cost separately or we pay customs directly. A more complex scenario is when we have a special supplier (or more suppliers) for the landed cost or it is required to separate components of Landed cost. This process is complex and it needs to be done in a couple of a steps in Erpag and we have a special type of document for that called “Landed cost”.

Landed cost button

The entry is similar as with “Utility bill”, items are all type service. To separate by components, we can open appropriate service items.

Reference number (Landed cost) field

What we recommend is entering “Reference number” for landed cost. That information will be useful for us to track how much of the value we have used of supplier invoice for landed cost and corresponding purchase order in which we use landed cost. The data you are entering can be your internal number.

Note: The reference number from the document itself and the reference number for Landed cost are two different data. The first one refers to a reference that is usually provided to us by a supplier (an ie. reference to a supplier) and it is used in most cases to relate payments towards suppliers.

What ERPAG supports is:

  • One supplier invoice for the landed cost (ERPAG document “Landed cost”) is used for one purchase order (one-to-one).
  • Multiple supplier invoices for the landed cost (ERPAG document “Landed cost”) are used for one purchase order (many-to-one).
  • One supplier invoice for the landed cost (ERPAG document “Landed cost”) is used for multiple purchase orders (one-to-many).
Landed cost - Purchase order relations

Connecting relations is done by the Landed cost reference number. In the Purchase order we specify Landed cost as “Third-party”, enter a reference number for landed cost and amount we will use.

Setting third party landed cost

Note: Reference number for landed cost and landed cost amount is entered manually. It has to be done that way because when working on a document, it is still unknown which relation is in question, as well as whether the document “purchase order” or “landed cost” is entered first. It can’t be adequately automated since this is a complex process.

We know from practice that customers who use “one-to-one” usually enter the purchase order number as a reference for the landed cost.

When you are not in “edit mode”, a simple click on the “info” icon in the reference number opens a table where that reference was used.

Reference number info button

Landing cost reporting

Landed cost is vital a part of the purchase order. In the Purchase report, the value of allocated costs is seen as a separate column.

Landed cost column

If you need to analyze landed cost components, just switch to “Landed cost” in the Type dropdown menu.

Purchases report - Type

Due to possible complications in practice, it happens that it is difficult to follow which references we closed ie. whether we completely used Third party expenses. For that reason, we have an “Open landed cost” report in ERPAG.

Open landed cost
List of documents in Open landed cost

The “Landed cost” column shows us value on the Landed cost document (ie. the value according to Third party supplier). while the “Documents” column shows us how much value is linked to other documents by reference. By clicking on the Info icon, we get details for all documents.

Landed cost on internal transfer

When you transfer goods from one warehouse to another, and that process is done by an external company, there will also be a Landed cost.

Transfer landing cost

Landed cost type in transfers is only “Third-party”. The principle is the same as with Purchase orders. When used for transfers, landed cost increases stock price in the destination warehouse.

Note: Warehouse in Landed cost document has to be identical to destination warehouse in transfer document.


An example from the picture above, on stock price in destination warehouse (“Second WH”), will be added 0.5$ (5$ / 10pcs).

Subsequent addition of Landed cost

In practice, it happens after receiving the goods we have to “Add” Landed cost to items that are now on stock.

The most common reasons are:

  • Delay in supplier documentation for landed cost.
  • Storage fees (eg 3PL – third party logistics)
  • Fees for adjusting and handling of the goods
  • Increasing (investing) the value of fixed assets
  • Fees for periodic testing, attestation, and control of goods.

Subsequent addition of Landed cost in ERPAG is located in Stock adjustments, under the “Landed cost” option.

Landed  cost adjustments
Stock adjustments ref number

Entry is identical as with stock adjustments when you change the stock price. When changing stock price, for each item you are entering the new stock price, in this type of stock adjustment, you are entering total Landed cost amount, ie value which increases the stock amount. ERPAG will distribute the amount by “Stock amount” method on each item. ie. An item with the highest stock amount will receive the most from the total Landed cost.

Relating with supplier invoice is the same as entering “Third-party” in a Purchase Order. ie. we are entering Landed cost document with reference that correlates with stock adjustment.

Landed cost reference

Since the process is almost identical as with stock price change, Calculation for additional landed cost will be for the entire available quantity in a given warehouse(On-hand quantity). Since landed cost is allocated(increasing) on the stock amount, mathematically for us it makes the same result however we allocate the cost. For example, 50$ split to 5 pieces or increase the value of 50 pieces which is 50$.

Note: If our method of managing the warehouse is FIFO since the value is distributed to the entire quantity, The new FIFO stock price will be valid from the moment the stock price changes.

If you still need to distribute it in the appropriate quantity, there is a workaround for that. You can simply open a virtual warehouse (for example adjusting and manipulation), transfer the appropriate quantity to that warehouse via Transfer, make stock adjustment with landed cost and return that quantity to the starting warehouse with a new transfer.

The change of the stock amount is especially visible on each item “stock card”.

Item stock card

Estimated Landed cost

In this blog so far we have explained things that already happened(“facts”), that is, we were entering data from already obtained documents. In practice, business requires to pre-calculate Landed cost into the cost of the product.

In ERPAG, there is “Estimated cost” which is made of The purchase price and Landed cost.

Product purchase price and landing cost
Product estimated cost

We are also able to enter estimated landed cost on the supplier page, supplier price list panel.

Supplier price list

Estimated landed cost is data that should contain all necessary elements that will make up the Landed cost(eg shipping cost, custom import duties, third party supplier cost, etc…).

Landed cost is usually entered for an individual quantity of a basic unit of measure(1pcs, 1kg, 1l, etc…). But if landed cost is based on quantity (eg larger quantity has less shipping per unit), we use “Tier quantity”.

Estimated Landed cost and Purchase order

If a Purchase order is created via fulfillment (backorder) process in ERPAG, Landed cost will be placed based on the estimated Landed cost of the “Supplier” type.

Purchase order landed cost

More information about the fulfillment (backorder) process can be found on this blog:

When manually creating a purchase order, entering landed cost is not automatic. Unlike fulfillment base purchase orders, when manually entering a purchase orders, the system can not know whether you are doing estimated or actual landed costs. If you are doing Estimated landed cost, there is a special “Apply – Landed cost” button on the right.

Lending cost apply button

This option fills the landed cost with the estimated amount based on the supplier price list and the item in the Purchase Order.

Landed cost on Request for Quotation

When deciding between multiple offers from different suppliers, Landed Cost is a parameter to consider.

Request for quotation- landed cost

In the Request for Quotation document, there is an option to enter an amount for each supplier, that amount is included in the “total amount”.

Also, if the supplier enters “request for quotation” independently via the URL provided to him, he will have the option of entering “shipping cost”.

URL supplier shipping cost entry

Note: We intentionally named Shipping costs for practical reasons, as only the supplier can change the shipping cost. If it is done via a third party or you have import custom duties, they would not have that type of information.

Landed cost and Accounting

The Landed cost has its implications in accounting, we will explain in particular, depending on the accounting model that is applied.

Note: ERPAG is designed to monitor internal business processes. For official accounting reports, we recommend that you consult with your accountant.

Landed cost and QuickBooks Online integration

Landed costs in QuickBooks Online are not directly supported. But there are ways to record such transactions.

More information about QuickBooks Online integration with ERPAG can be found in this blog:

If landed cost is “Supplier” type, then landed cost in QuickBooks Online purchase amount is included.

Purchase order landed cost amount

In more complex scenarios where you have for example International trade and/or Third-party landed cost type, a workaround has to be done.

The amount that is entered in the Bill (via the API) has already included landed cost.

Bill included landed cost

That was implemented due to creating inventory and for creating “Cost of goods sold” (COGS) later on. The problem with this is that landed cost is added to the supplier (ie to Account Payable), which means the amount has to be manually amended via “Journal entry”.

Journal entry

With a negative amount, we are reducing our liability towards the supplier, and a positive amount should be distributed to the appropriate accounts.

Note: Quickbooks Online calculates the cost of goods sold (COGS) based on summited documents. ERPAG has no direct effect on forming (COGS), it can only be effected through documents that are posted via API integration.

Landed cost and XERO integration

XERO as well doesn’t have directly supported landed cost operation. The principle is the same as with QuickBooks Online, a workaround has to be done.

More about integration with XERO can be found in this blog:

If you have a third-party landed cost, you have to adjust your paying obligations to another vendor. XERO workaround is a little different (since direct posting to Account payable is not possible). First, you must have an account that will temporarily have a landed cost value (Account type “Current liability” where the “payments” are enabled).

Edit accounts details

Now in Bill, you are reducing obligation towards supplier by “recording” the payment on the account you previously opened.

Reducing obligation

For the item (Type – Service) which is used in The landed cost document, you are selecting that account again (“Landed cost”).

Selecting expense account Landed cost

Here are the results of this workaround:

Xero landed cost example

In our example on Supplier “Metal and steel-hard” required payment is 185.50$ (237.50 – 50), on “Airspeed ltd” required payment will be 50$.

Note: This workaround has to be checked with your accountant, to see if it agrees with your accounting policy.

Internal Accounting

ERPAG has internal accounting system designed for internal reporting. With the “Supplier” type of a landing cost, the value is added to “Account Payable” account, while with the “Third party” there is value that is booked to a special account.

Additional expenses

In the “Landed cost” document, this item is posted to the “debit” item in the manual journal voucher

General ledger

You can also see transactions through the General ledger report. The “Default” account in ERPAG is “Additional expenses”.

Additional expenses account

Note: For official reporting, use QuickBooks Online or Xero.

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