What is Landed Cost?
Landed cost is the total cost of a product once it arrives at its destination, including purchase price plus freight, duties, insurance, and handling.
Definition
Landed cost is the complete cost of acquiring an item and bringing it to the point of use or sale, going beyond the supplier's price to include freight, customs duties, taxes, insurance, brokerage, and handling fees. Calculating it accurately is essential for true margin analysis, pricing, and sourcing decisions, especially for imported goods. Because many of these charges arrive on separate invoices after the goods, allocating them back to the right items is a recurring accounting challenge. Companies that ignore landed cost often overstate margins on imported products.
How Landed Cost Works in ERP
ERP systems capture estimated landed-cost components on a purchase order and then allocate actual charges, such as freight and duty invoices, across the received items using rules like weight, value, or quantity. The allocated costs are added to inventory value so that cost of goods sold reflects the true landed cost. Variances between estimated and actual charges are posted to adjust inventory or expense accounts when the final invoices arrive.
ERP Vendors with Strong Landed Cost
Frequently Asked Questions
What charges are typically included in landed cost?
Landed cost usually includes the product purchase price, inbound freight, customs duties and tariffs, import taxes, insurance, brokerage fees, and handling or port charges. The exact mix depends on the supply route and incoterms. The goal is to capture every cost incurred to get the item ready for sale or use.
How does an ERP allocate landed cost across items?
When a freight or duty invoice arrives covering many items, the ERP spreads the charge across those items using an allocation basis such as value, weight, volume, or quantity. The allocated amount is capitalized into each item's inventory cost. This ensures margin and COGS reporting reflect the fully landed value rather than just the supplier price.