About landed cost application scenarios

Some of the landed costs, such as freight, are typically known when the goods are received and can be applied to purchase or transfer receipts in the Purchases workspace.
Other types of landed costs may become known later, when an invoice from the service provider is received; these landed costs must be specified on an invoice in the Supplier ledger workspace that is linked to the appropriate purchase or transfer receipts. Also, there may be landed costs that can be applied in either of these ways: on a receipt or on an invoice.
The way the landed costs of a particular type must be applied to item costs is defined by the application method selected for the appropriate landed cost code.

There are two typical scenarios, then, of users tracking landed costs associated with the received items.
The scenarios that are possible for the landed costs of specific type are defined by the option selected in the Application method field in the Landed cost codes (PO202000) window:

• I. From purchase order: The landed costs are added directly to a purchase or transfer receipt.
• II. From supplier The landed costs are added to an invoice that can be associated with an existing purchase or transfer receipt.

If the From both option is selected the Application method field, either of scenarios can be applied.

This topic describes how the landed costs can be specified for purchase receipts.

With this scenario, while you are entering a receipt in the Purchase receipts (PO302000) window, you also enter the landed costs whose codes specify that they are applicable in the Purchases workspace or in both the Purchases and Supplier ledger workspaces.
On the Landed costs tab of the window, select the landed cost code and specify the landed cost amount.

When you release a receipt with landed costs specified, the following documents are generated:

• An invoice to be paid to the supplier of the goods
• One invoice or multiple invoices to be paid to each landed cost supplier (such as a carrier or customs office) with the landed cost code that was specified on the receipt
• A receipt in the Inventory workspace for the goods received into inventory at a specific warehouse
• Inventory adjustments that update stock item costs in accordance with the allocation method of the landed cost code, with as many adjustments for each item as there are different landed cost codes.

  If you configure landed cost codes that allow landed costs to be added directly to a purchase order receipt, you can select the Release inventory documents automatically option in the Purchase order preferences (PO101000) window to make sure that the item costs will be promptly updated.

If the inventory adjustments were not created, which can happen if some of the accounts and subaccounts required for landed cost processing were not specified for stock items mentioned in the receipt, you use the Release landed costs from purchase invoices (AP506500) window to generate these adjustments.
The receipt is visible on one window, the other, or both, depending on the application method (From purchase order , or From both method) selected for the landed cost code.

When you need to enter the landed costs of a specific type on the purchase receipt, if the exact amount of the landed costs is not known, you can enter the estimated amount under this landed cost code.

Later, when the exact amount becomes known, on the purchase invoice generated for the receipt, you can manually adjust the amount of the landed costs.
The difference between the previous amount and the adjusted amount is automatically added to the Landed cost variance account specified in the Landed cost codes (PO202000) window for the landed cost used on the original receipt.

With this scenario, you can enter an invoice from the landed cost supplier responsible for additional charges by using the Purchase invoices (AP301000) window.
Such an invoice should be associated with the original purchase receipt or receipts.
In this window, you can specify only landed costs with codes that allow application in the Suppliers workspace or both the Suppliers and Purchases workspaces.
These costs, even though they are entered after the purchase, should also update inventory costs.

Before you create an invoice for landed costs, make sure that the original purchase receipt and the inventory receipt are released.

On release of such a landed cost invoice, inventory adjustments (for all stock items mentioned in the associated receipts) are generated to update the product costs.

If an inventory adjustment was not generated automatically because some of the accounts were not specified, use the Release landed costs from purchase invoices (AP506500) window to manually generate these adjustments for each invoice.

Upon release, an inventory adjustment updates the inventory costs of items differently depending on the valuation method of the item:

• For stock items with the FIFO or Specific valuation method, the cost on the particular cost layer (created by the receipt) is updated as follows:
  • If the layer still has the original quantity, the cost of all items on the layer is updated, and the landed cost amount from the landed cost accrual account is transferred to the inventory account assigned to the item.
  • If the current quantity on the layer is less than the original quantity, the landed cost amount is moved from the landed cost accrual account to update the Landed cost variance account and the Inventory account in proportion with the sold and unsold quantities, respectively.
    
    (If you need to adjust the sales account on release of the inventory adjustment, you can use the same account for the COGS account and the landed cost variance account.)
• For items with the Average valuation method, the landed cost amount from the landed cost accrual account is transferred to the inventory account assigned to the item and updates the average cost of the unit. At the moment of inventory adjustment release, if some of the units (listed on the purchase receipt) were sold, the landed cost amount updates both the landed cost variance account and the inventory account of the item proportionally to the unsold and sold quantities (as on the original purchase receipt), respectively.
• For the Standard cost valuation method, the amount from the landed cost accrual account is moved to the landed cost variance account.