Landed Cost (Item Charges) in Business Central 

Do you have the need to update your inventory cost to account for tariffs, duties or inbound freight charges?  Business Central has a way to incorporate these costs into your inventory valuation and reconcile it with accounts payable.  This ensures that you can calculate gross margin accurately. 

Overview 

When items are purchased from a vendor there is the initial cost or buying cost for that item. Before the item is received into inventory, there are other costs that could be added to that item such as shipping, customs, fees, etc. These additional costs are called Landed Cost and are vital for detailed tracking of the actual cost of items, accurate profit margins, good competitive pricing, and help aid in strategic sourcing of items.  

In Business Central, Landed Cost can be added through Item Charges or Charge (Items).  

Setup:  

1. Use the global search to navigate to “Item Charges” and create the landed cost item charges with the correct Gen. Prod. Posting Group. Tax Group Codes, and Dimensions can be added as well if applicable. 

In our example, we’ll be adding the Item Charges: 

• IN-FREIGHT for Inbound Freight Charges 

• DUTY for Duty Fees 

• INSURANCE for Insurance Fees 

Using Item Charges for Landed Costs: 

For our example scenario, we will purchase from our furniture vendor Fabrikam Inc.: 

• 10 PARIS Guest Chair, black at $150.00 per chair 

• 10 MUNICH Swivel Chair, yellow at $110.00 per chair 

However, we received a $100.00 invoice from another vendor, Wide World Importers, for the shipping and handling of the chairs with Freight Costs allocated by the weight of the chairs, and Duty and Insurance Fees which were allocated by the chairs’ dollar amount.  

Item Charges can be used to spread the additional $100 landing cost for Freight, Duty, and Insurance costs to our purchased chairs. 

1. Create and post the initial purchase of the items from the initial vendor. Create and Post the Purchase Document as normal to receive the items into your inventory. The items do not need to be invoiced at this time.  

In this example, we will post a Purchase Invoice for Fabrikam, Inc with Item lines for the purchase of: 

• 10 PARIS Guest Chairs, black at $150 per chair. 

• 10 MUNICH Swivel Chair, yellow at $140 per chair.   

Running the Inventory Valuation Report shows: 

• 10 PARIS Guest Chairs, black with a total Inventory of $1,500.00 at $150.00 per chair. 

• 10 MUNICH Swivel Chairs, yellow with a total inventory of $1400.00 at $140.00 per chair. 

• The total inventory value for both chairs is $2,900.00.  

2. Create the purchase document for the Landed Costs. Create a Purchase Order or Invoice to the other vendor and add in purchase lines for the item charges for the landed costs. 

In this example, we will create a Purchase Invoice totaling $100 for Wide World Importers with Charge (Item) purchase lines for: 

• IN-FREIGHT for Inbound Freight Costs at $50.00 which will be distributed by Weight 

• DUTY for Duty Fees at $30.00 which will be distributed by Dollar Amount 

• INSURANCE for Insurance Fees at $20.00 which will be distributed by Dollar Amount 

3. Open the Item Charge Assignment Window. Select the Charge (Item) to assign > Click on the Line Tab > Related Information > Item Charge Assignment > a new Item Charge Assignment window will appear.  The Qty. To Assign field on the Purchase Line can also be clicked on to open the Item Charge Assignment window.  

We will first select and assign the Inbound Freight Cost (IN-FREIGHT) in our example to distribute the $50 landed cost for FREIGHT. 
 

4. Get Receipt Lines. The “Get Receipt Lines” function can be used to pull in items already received to apply the item charge to.  In the Item Charge Assignment Window > Click on “Get Receipt Lines” > Select the Purchase Receipt Lines to add the Item Charge Landed Cost to > Click Ok. 

In the example, we will select the two receipts for the 10 PARIS Guest Chairs and 10 MUNICH Swivel Chair, yellow that we purchased from Fabrikam Inc.  

5. Assign the Cost. The selected Purchase Receipt Lines will populate the Item Charge Assignment Window. Click on “Suggest Item Charge Assignment” for Business Central to assist on assigning the landed costs. 

 If there is only 1 purchase line, the item charge will distribute to the 1 purchase line automatically to the Qty to Assign. 

If there are more than 1 purchase lines, a prompt will appear to set the Qty to Assign on the item charge: 

• Equally. This will distribute the item charge equally to all purchase lines.  

• For example, if this is a standard handling fee which is the same for all items.  

• Qty. To Assign = Total Cost of the Charge (Item)/The number of Receipt Lines. 

• By Amount. This will distribute the item charge by the unit cost of the item.  

• For example, if this is an insurance cost for high value items such as vehicles, appliances, and specialized equipment 

• Qty To Assign = Unit Cost of the Received Item/Total Cost of the Receipt Lines 

• By Weight. This will distribute the item charge by the Gross Weight of the received item. 

• For example, a freight charge by weight for heavy items such as bricks, steel, or large equipment.  

• Qty. To Assign = Item Gross Weight/Total Weight of the Receipt Lines. 

• By Volume. This will distribute the item charge by the Unit Volume of the received item. 

• For example, a freight charge by items that take up a lot of space during shipping such as foam, large panels, or concrete forms.  

• Qty. To Assign = Item Unit Volume/Total Volume of the Receipt Lines. 

The Qty to Assign can still be manually updated if needed after using the Suggest Item Charge Assignment function.  After verifying the amounts, the Item Charge Assignment window can be closed.  

In this example, we will distribute the $50.00 IN-FREIGHT item charge “By Weight.” After clicking “OK.” You will see that the quantity and amount to assign and handle will update accordingly.   

• The MUNICH Swivel chair has a Gross Weight of 20 lbs. from the Item Card at the time of receipt. 

• The PARIS Guest chair has a Gross Weight of 40 lbs. from the Item Card at the time of receipt. 

• This gives the two receipts a Total Weight of 60 lbs. (20 lbs. + 40 lbs.= 60 lbs.) 

• By Weight, Qty. To Assign = Item Gross Weight/Total Weight 

• For the MUNICH Swivel chair, the Qty. To Assign equals 0.33333. (20lbs/60 lbs. = 0.33333) 

•  Amount to Assign = Qty. to Assign x Item Charge Cost 

• For the MUNICH Swivel chair, the Amount to Assign equals $16.67. (0.33333 x $50.00 = $16.67) 

6. Assign All (Charge) Item Purchase Lines. Repeat Steps 3-5 until all Charge (Items) have been assigned to be invoiced.  

In this example, we will repeat steps 3 through 5 to assign the Item Charges for the Duty and Insurance fees to the received items by Amount. For a breakdown of the Duty Fees distributed by Amount:  

• The MUNICH Swivel chair was received at a unit cost of $140.00 per chair. 

• The PARIS Guest chair was received at a unit cost of $150.00 per chair. 

• This gives the two receipts a Total Cost of $290.00.  ($140.00 + $150.00 = $290.00).  

•  By Amount, Qty. To Assign = Unit Cost/Total Cost 

• For the MUNICH Swivel chair, the Qty. To Assign equals 0.48276. ($140.00/$290.00 = 0.48276) 

•  Amount to Assign = Qty. to Assign x Item Charge Cost 

• For the MUNICH Swivel chair, the Amount to Assign equals $14.48 (0.48276 x $30.00 = $14.48) 

In the example, the total Landed Costs were $100 with Freight Cost at $50.00, Duty Fees at $30.00 and Insurance Fees $20.00.  For a complete overview of the additional landed cost for the chairs:  

• 10 MUNICH Swivel chairs were received and invoiced at $1,400.00 at $140.00 per chair with additional landing cost: 

• Freight Cost: $16.67 or 1.67 per chair 

• Duty Fees: $14.48 or 1.45 per chair 

• Insurance Fees: $9.66 or 0.97 per chair 

• 10 PARIS Guest chairs were received and invoiced at $1,500.00 at $150.00 per chair with additional landing cost:  

• Freight Cost: $33.33 or $3.33 per chair 

• Duty Fees: $15.52 or $1.55 per chair 

• Insurance Fees: $10.34 or $1.03 per chair 

7. Post the Purchase Document and Review. After assigning all the item charges, the purchase document can be posted to invoice the item charges. 

 To review, the Inventory Valuation Report can be run to see the results with the added Landed Costs. 

• 10 PARIS Guest Chairs, black now has an Inventory Value of $1,559.19 at $155.92 per chair. 

• 10 MUNICH Swivel Chairs, yellow now has an Inventory Value of $1440.81 at $144.08 per chair. 

• The total inventory value for both chairs has increased by the $100.00 landed costs from the original value of $2,900.00 to $3,000.00. 

Conclusion 

Using Item Charges to take account of Landed Costs is a great way to manage inventory costs as it travels from supplier to inventory. It can help managers have a clearer picture of the actual costs for those items and make better decisions on pricing, shipments, and sourcing strategies!  

Notes:  

• In the example, Fabrikam was the furniture vendor and Wide World Importers was the shipping vendor. If Fabrikam charged additional landed cost themselves, the item charges can be added and assigned to the initial purchase document for the purchase of the items.   

• Item Charges can only be invoiced when the charges are fully assigned. If a purchase line has an item charge assignment that has not been received or will not be received, the item charge cannot be invoiced. This is due to the possibility of the item not ever being received into inventory.  

• We used “Get Receipt” in the Item Charge Assignment window for Landed Costs from a shipping vendor, but the “Get Transfer Receipts” can be used to add Landed Costs to transfers between Locations.  

• Item Charges cannot be “undone” from the Purchase Receipt once received into inventory. If Item Charges were accidentally only received at an incorrect amount, the Purchase Order can be invoiced fully and then credited with a Purchase Credit Memo. 

• Weights or Volume of an item are based at the time of receipt into inventory. If an item is received into inventory at a certain weight, and the weight on the item card was updated afterwards. Business Central will still use the original weight or volume at the time of the receipt. 

If you would like to learn more about how to accurately calculate your inventory costs, the experts at PrenticeWorx can help!   Please reach out to us to learn more!