Supplier invoice price may understate what inventory actually costs
Imported or distributed goods can incur ocean or air freight, customs duties, brokerage, insurance, port fees, domestic transport, and other costs before inventory reaches the location where it can be sold.
If those amounts are all treated as period freight expense, product margins can be misleading.
Define which costs enter inventory
The accounting policy should identify acquisition costs that are capitalized into inventory and costs that remain period expenses. Tax and financial-reporting rules can differ, so the policy should be reviewed by the company's accountant.
Use consistent treatment across shipments and periods.
Choose a reasonable allocation method
Freight and import charges can be allocated by units, weight, volume, value, or another driver that reflects the shipment. The method should be practical and repeatable rather than engineered for a desired product margin.
Keep the shipment-level calculation with customs and freight documents.
Use landed cost in purchasing and pricing decisions
A product that looks profitable at supplier price can become unattractive after freight and duties. Compare landed cost with selling price, discounts, returns, payment fees, and fulfillment costs.
That makes inventory accounting useful before the next purchase order is placed.
Questions buyers usually ask
What is landed cost?
It is the total cost of acquiring inventory and bringing it to the point where it is ready for sale, which can include purchase price and certain freight, duty, brokerage, insurance, and related acquisition costs.
How should landed costs be allocated across products?
Use a consistent, reasonable driver such as units, weight, volume, or value based on the shipment and the company's accounting policy.
Check provider facts at the source.
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