Understanding Landed Costs

The cost of obtaining inventory stock includes more than just the material costs of the items. Landed costs include all of the charges that are associated with getting items into a warehouse and available for use or sale, including material, subcontracted services, freight, insurance, duty, taxes, and handling charges. This topic discusses how to handle all of the landed costs.

PeopleSoft's landed costs feature calculates and accounts for the total landed cost by recording the variances for the difference between the actual invoiced cost and estimated purchase order (PO) cost for:

1. Material costs of the item.

2. Subcontracted services that are included in a production ID in PeopleSoft Manufacturing. This only applied to subcontracted services using actual cost accounting.

3. Other miscellaneous landed costs, such as freight, insurance, duty, taxes, and handling charges.

   Note: PeopleSoft's landed cost feature can be used to record the non-recoverable portion of excise duty, customs duty, and sales tax for India.

These variances can be applied to the system by updating the item's cost (for actual and average cost items) or updating a variance account (for standard cost items).

PeopleSoft's landed costs feature:

• Uses cost elements and miscellaneous charge codes to identify and track each type of landed cost separately or in groups. The material cost of the item is tracked by the material cost element. Other miscellaneous landed costs are tracked by the miscellaneous charge codes and cost elements in the landed cost cost category.

• Displays the estimated landed costs by default on the PO.

• Copies the estimated landed costs from the PO to the receipt where the landed costs are prorated to the individual receipt distribution lines. At putaway, the accrued landed costs are entered into the value of the inventory stock so that the full cost of obtaining the inventory stock is recorded.

• Uses the actual landed costs that are derived from the posted vouchers in PeopleSoft Payables, including all adjustment and reversal vouchers, to calculate variances that update inventory stock values or variance accounts. These variances adjust for changes between estimated and actual landed costs based on fluctuations in both the costs and exchange rates. During voucher entry, material costs and miscellaneous charges can be entered on vouchers that are received from the merchandise supplier or from third-party vendors. The merchandise vouchers must be matched and posted before their actual landed costs are passed to PeopleSoft Cost Management. Third-party vouchers must be posted before their actual costs are passed to PeopleSoft Cost Management.

• Processes the material cost of a subcontracted PO as a landed cost. The subcontracted service must be defined for actual cost. No miscellaneous charge codes are needed for subcontracted services. The estimated cost on the PO is used to record the receipt of the subcontracted service into PeopleSoft Inventory and Manufacturing. Later, when the voucher is entered, matched, and posted, the actual (voucher) cost is used to update the production ID and inventory stock.

• Generates reports to accurately compare estimated versus actual landed costs enabling you to better evaluate supply options.

Consigned items can be set up as landed cost items. When the consigned item is consumed, then the system transacts all accrued landed cost charges.