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V9 - Landed costs

The landed cost of an item is the complete amount that it costs you to get the item into inventory. The landed cost feature of SOS Inventory, available on the Pro plan, allows you to include costs other than the raw cost of a received item. For example, you might wish to include shipping charges, customs charges, duties, overhead expenses, etc.

When creating an item receipt, the system allows you to take the total value of the expense items in the Other costs section and distribute it proportionately across the value of the inventory line items in the main section. 

In using landed costs in SOS Inventory, note the following:

• For landed costs to work correctly, the expense account of the items in the Other costs section must match the inventory asset account of the inventory items listed in the top section of the receipt. 
  • It is recommended that you use the same asset account for all inventory items purchased and all expense items entered as other costs.
     
• To create a bill to pay a vendor for an expense item in the Other costs section, you must do all of the following:
  • Select from the Item dropdown the expense item to be billed.
  • From the Vendor dropdown, select the applicable vendor (whether the same vendor as that at the top of the item receipt, or a different vendor).
  • Enter the Amount to be billed.
  • Check the box in the Bill column. (This ensures that all asset value will be sent to QuickBooks upon sync.)
     
• If the other costs involve one or more vendors:
  • The system will post separate bills in QuickBooks for each other-cost item that meets either of the following conditions:
    • The other-cost item's vendor is different from the vendor listed at the top of the item receipt. 
    • The other-cost item's vendor is the same vendor listed at the top of the item receipt, but the Account transaction type for the items received is not Bill.
  • The system will post a single bill in QuickBooks that combines an other-cost item with the received items, if both of the following conditions are met:
    • The other cost item's vendor is the same vendor listed at the top of the item receipt.
    • The selected Account transaction type in the top part of the item receipt is Bill.
       
• Each other-cost bill's reference number will be the reference of the item receipt with an -OC-[line item number] at the end. (OC represents Other costs.) Examples: PO-2974-OC-1, PO-2974-OC-2.
  • The exception to this numbering rule is when the vendor for an other-cost item is the same as the vendor at the top of the item receipt, with the Account transaction type as Bill. SOS will send over only one bill for that vendor to QuickBooks. The bill transaction reference number in QuickBooks will match the item receipt reference number. No suffix will be added.
     
• If you use the Multicurrency feature, and the vendor in the Other costs section uses a currency different from that of the vendor at the top of the item receipt, manually enter the Amount value in the currency you pay that vendor. (The amount should be listed in an invoice from that vendor.)

Refer to the next section for an extended example showing how landed costs are processed in SOS Inventory and QuickBooks Online.

How landed costs are handled in SOS Inventory and QuickBooks Online

The example below explains:

• How other costs (e.g., freight, VAT, etc.) are entered on an item receipt in SOS Inventory, and how they appear in the Sync queue.
• How bills synced from SOS to QuickBooks Online appear in QuickBooks transactions.
• How to use SOS Inventory's transaction history feature to discover an item's landed costs for a specific transaction. 

Entering other costs on an item receipt in SOS Inventory

The screenshot below shows the main and Other costs areas of item receipt PO-185A. The quantities of 10 ordered for Computer Monitor - 19 in and 20 for Computer Mouse have been received from the vendor, Anderson Supply. The Account transaction type selected to pay for items received from this vendor is Bill.

In addition to the $1500 total purchase cost for the monitors ($1400) and mice ($100), three expenses are recorded in the Other Costs area at the bottom of the item receipt: a Handling (OC) fee of $200 (also for Anderson Supply), as well as a Freight & Shipping charge of $350 and an Insurance (OC) fee of $325 for FedEx. The Bill box has been checked for all three expense items.

In the Sync queue (Sync > Preview sync), the data awaiting sync to QuickBooks for PO-185A are shown in the screenshot below. 

The Sync queue includes the following transactions:

• The associated purchase order, PO-185A.
• Two separate bills for FedEx for the other costs listed on the item receipt. One bill is for the freight and shipping, the other for the insurance.
• A bill associated with the item receipt. The bill is payable to Anderson Supply. As we will see on the QuickBooks side, the bill includes both the items received and the handling charge in the Other costs section.

How QuickBooks handles bills for other costs synced from SOS

After the item receipt syncs to QuickBooks, a search for PO-185A displays a list of the associated transactions, as shown in the screenshot below:

The QuickBooks transactions display the following:

• Purchase order PO-185A to Anderson Supply for $1500. The PO reflects the cost for the mice ($100) + monitors ($1400) ordered.
• Bill PO-185A to Anderson Supply for $1700. The bill reflects the sum of the cost for the mice and monitors received ($1500) + Anderson's handling fee ($200) in the Other costs section of the item receipt. When this bill is selected and opened, each charge is itemized, as shown below:
  
  
   
• Bill PO-185A-OC-2 to FedEx for the $350 freight and shipping charge.
• Bill PO-185A-OC-3 to FedEx for the $325 insurance fee.

Note that although QuickBooks combines the charge for Anderson's handling fee and that of the items received into one bill, it keeps the two FedEx other costs as separate bills. As a reminder, the -OC-2 and -OC-3 at the end of the FedEx bill reference numbers represent the line numbers in the Other costs section of the item receipt.

How SOS Inventory distributes landed costs to inventory items purchased

The formula used to calculate the proportionate distribution of landed costs across the inventory line items received is a multi-stepped process. Fortunately, SOS Inventory automatically calculates that for you, which you can view via each item's transaction history.

In an item's transaction history table, the value in the column Txn cost/unit is the per-unit landed cost for a specific transaction. The screenshot below shows that for PO-185A, the Txn cost/unit for Computer Monitor - 19 in was $221.67.

The other important column is Variance, which reflects the difference between the total standard cost (the purchase cost in the item definition x the Txn qty) and the total actual cost. For PO-185A, the variance was $816.67.

The methods SOS uses to calculate the Txn cost/unit (the per-unit landed cost) and the Variance are explained below.

Calculating the Txn cost/unit (per-unit landed cost)

1. For an inventory line item, the value in its Amount column is divided by the Total amount for all inventory items on the top part of the item receipt. This determines the percentage of total landed costs that will be applied to that line item.
   1. In our item receipt PO-185A example, we will look at the other costs for Computer Monitor - 19 in: 
      1. The value in the Amount column for Computer Monitor - 19 in is $1400.
      2. The Total amount of all inventory items on the top part of the item receipt is $1500.
      3. The percentage of other costs to be applied to Computer Monitor - 19 in = $1400 ÷ $1500 = .93333 (93.333%)
          
2. The total Amount in the Other costs section is multiplied by the percentage in Step 1 to calculate the monetary value that should be added to the inventory item received.
   1. On item receipt PO-185A, the amount of landed costs to be applied to the monitors = $875 (Total other costs) x .93333 (Computer Monitor - 19 in percentage of other costs) = $816.66667 
       
3. Add the item's Amount column value in the top part of the item receipt and its other costs percentage amount.
   1. $1400 (Computer Monitor - 19 in Amount) + $816.66667 (Computer Monitor - 19 in other costs percentage amount) = $2216.66667 
       
4. Divide the sum in Step 3 by the Quantity for the item on the item receipt to obtain the per-unit landed cost.
   1. $2216.66667 (Total landed cost for Computer Monitor - 19 in) ÷ 10 (Quantity for Computer Monitor - 19 in) = $221.66667, rounded to $221.67. 
   2. The $221.67 per-unit landed cost calculated here matches the Txn cost/unit value in the item history table screenshot above.

Calculating the Variance

As previously stated, variance is the difference between the total standard cost (the purchase cost in the item definition x the transaction quantity) and the total actual cost.

1. Total standard cost = $140 x 10 = $1400
   1. The purchase cost for the monitor in its item definition = $140
   2. The transaction quantity (Txn Qty column on the transaction history table) = 10
       
2. The total actual cost (the unrounded value in Step 4a above) = $2216.66667
    
3. Variance = The difference between the total standard cost and the total actual cost = $2216.6667 - $1400 = 816.66667, rounded to $816.67. This matches the value listed in the Variance column in the transaction history table.
    
4. To see the value of the landed costs added to each item unit, divide the Variance value by the Txn qty to see the per-unit increase. In this example, an increase of $81.67 was the other cost assigned to each monitor. When $81.67 is added to the $140 (the purchase cost in the item definition), the sum is $221.67. This matches the value in the transaction history's Txn cost/unit value.