Last updated 30/06/2022
Note: Only one method of applying landed costs must be used in a single Purchase Order, either via the linked transaction functionality or via entering it in the Landed Costs section of the Purchase Order. Using both against a single Purchase Order will corrupt the landed cost calculations of that Purchase Order.
Cin7 calculates landed costs very accurately.
To apply Import Costs to a Purchase Order:
Step one is simple, just create a Purchase Order for your products as usual. This will be referred to as your 'products' Purchase Order.
For more information on how to create Purchase Orders - see Creating a Purchase Order and Purchasing in a Foreign Currency.
Create a Purchase Order (or Purchase Orders) for your import costs. This will be referred to as your 'import costs' Purchase Order.
We recommend creating separate non-stock products for line items such as Freight and Customs Duty. You will find a 'Freight' non-stock product pre-loaded in your account. Feel free to create additional non-stock products if you require additional line items. For more information on how to do this see the Non Stock section of our article Stock Control Methods.
To create a Purchase Order for import costs:
Once your 'import costs' Purchase Order has been created and saved, you now need to apply the non-stock line items for freight and customs duty back to the 'products' Purchase Order. To do this:
Please note that the 'import costs' Purchase Order must have been saved before Transactions can be linked.
If your 'import costs' Purchase Order relates to more than one 'products' Purchase Order, you may wish to divide the import costs between multiple 'products' Purchase Orders. To do this:
This method will divide the import costs between the two 'products' Purchase Orders according to the percentages entered. However, if you wish to apply a greater portion of the import costs to one 'products' Purchase Order than the other, you will have to decide on the correct percentages to do this for each line item in the 'import costs' Purchase Order.
Note: You can use different 'products' Purchase Orders and allocation percentages for each line item in the 'import costs' Purchase Order.
Once the costs have been applied, returning to the 'products' Purchase Order, you can select the cost allocation method using the dropdown list in the Landed Costs section.
The amounts used for distribution of the Freight and Customs Duty will correlate to the import costs applied to this Purchase Order from the 'import costs' Purchase Order. Any line item, in the 'import costs' Purchase Order, with 'customs' in the name will be treated as Customs Duty. All other line items including Freight will be treated as Freight.
The total import costs are allocated to the landed cost of the products as follows:
You can choose how the total freight cost is distributed amongst the products from one of these three different ways:
Method | Description |
---|---|
Value | This is the default method used - the more expensive items receive a larger portion of the freight cost. This method is most appropriate if all your items have similar weights and dimensions. |
Weight | This method uses weight - the heavier items receive a larger portion of the freight cost. The weight of each product is specified in the product details page. This method is most appropriate if the weights of your products vary significantly. |
Cubic Meters | The method uses volume - the larger items receive a larger portion of the freight cost. The volume of each product is specified in the product details page. This method is most appropriate if the size of your products vary significantly. |
Examples:
A purchase order has two product line items on it with the following details:
- $100 value for Product A with a quantity of 5, weight of 5kg and volume of 2 cubic meters per item
- $200 value for Product B with a quantity of 10, weight of 10kg and volume of 9 cubic meters per item
The total freight paid is $30
Therefore, when $30 is entered as the total freight amount against this Purchase Order, Cin7 will split it and add it to the landed cost of each product depending on the selected distribution method as follows:
For Value distribution method:
- $30 x ($100 / ($100 + $200)) = $10 for Product A
- $30 x ($200 / ($100 + $200)) = $20 for Product B
For Weight distribution method:
- $30 x ((5 x 5) / ((5 x 5) + (10 x 10))) = $6 for Product A
- $30 x ((10 x 10) / ((5 x 5) + (10 x 10)) = $24 for Product B
For Volume distribution method:
- $30 x ((5 x 2) / ((5 x 2) + (10 x 9))) = $3 for Product A
- $30 x ((10 x 9) / ((5 x 2) + (10 x 9)) = $27 for Product B
The total customs duty amount will be distributed according to the Customs Duty Rate applied against each product line item in the Purchase Order.
Example:
A two product line items on the same purchase order above has the following custom duty rates applied as follows:
- Product A with a 5% customs duty rate applied against it
- Product B with a 10% customs duty rate applied against it
The total customs duty paid is ($100 x 5%) + ($200 x 10%) = $25
Therefore, when $25 is entered as the total customs duty amount against this Purchase Order, Cin7 will split it and add it to the landed cost of each product as follows:
- $25 x (($100 x 5%) / (($100 x 5%) + ($200 x 10%))) = $5 for Product A
- $25 x (($200 x 10%) / (($100 x 5%) + ($200 x 10%))) = $20 for Product B
Refer to this article to understand the setup and how the customs duty amount is distributed.
If you are using the Perpetual method of accounting, then those line items that have been applied to other Purchase Orders will be imported as Inventory, and all other items imported as expenses.
If using the Periodic method, all line items will be imported as expenses.
We can't change the field description, however if you were to enter weight as pounds or ounces, there is no technical reason why cost distribution shouldn't work, provided you enter the unit consistently across all your products, and the weight is in whole units. The same goes for dimensions.
Yes, this is possible. To do this, create a new purchase order for the landed costs, click in Transaction Links column and link it to the original purchase order. The landed costs will be applied accordingly.