As an accountant you may often confuse how to calculate the landed cost of your imported goods. Even some accountants have very poor knowledge regarding landed cost though this is considered as the most important costing for ascertaining the profit of the company. This article may help you how to calculate landed cost of your imported goods and ascertain an appropriate profit for the company.
What is Landed Cost?
Landed cost is the total costs of imported products including the purchase price, freight costs, insurance costs, due diligence costs, libor costs and other costs incurred up to the warehouse from the port destination. Landed costs also includes customs duties, packing charges, taxes, brokerage, harbor fees etc.
Formula of Landed Costs
The formula of landed costs are enumerated as follow:
| Invoice Amount/Purchase amount | **** |
| Add : Shipping Costs i.e crating, packing, handling, and freight costs | **** |
| Add : Customs Charges i.e Customs duties, taxes, tariffs, VAT, Brokers fees, harbor fees etc. | **** |
| Add : Risk bearing costs i.e Insurance, compliance costs, quality costs, safety stock costs | *** |
| Add : Overhead Cost i.e Purchasing staff cost, due diligence costs, Exchange rate fluctuation costs | *** |
| Landed Costs = | ***** |
Importance of Calculation of Landed Costs
Landed costs helps to figure out the actual costs as well as hidden costs price for the retailer. It helps you to determine the total costs which you imported and what would be the possible selling price of your products.
If store keeper doesn’t know the landed costs of the products, he will give equal concentration on every product and may be reluctant on the higher price goods. Hence, landed cost calculation plays a very significant role in calculating profit.
In a word, landed cost is the cost which unravel the hidden costs and helps to retailer to sell their goods at an appropriate price.
The landed cost analysis is important for the following reasons:
- Landed costs helps to determine the accurate profit of the company.
- It helps to estimate the selling price of the product.
- It helps to analyze where savings in the supply chain can be made.
- It helps to prepare a correct financial statement of the company.
- It helps to determine the exact purchasing price of the product.
Why Calculation would be difficult one!
If you have multiple product, landed cost calculation may not be so easy as you think. The company may have to face some difficulties while determining the total landed cost of a product due to incomplete date, lack of time and unreliable sources of information. Again, if you don’t have any basic knowledge of calculating landed cost, it may produce an inaccurate result.
Example of Landed Cost Calculation
XYZ Limited imported 500 units Raw Material, named ZQ which invoice value is RS. 20,000. Freight costs is RS. 4,000 , Duty & taxes paid Rs. 2,000. Normal loss is estimated 10 units. What will be the landed cost per unit of material ZQ?
Solution:
| Particulars | Units | Rs. |
| Invoice Value | 500 | 20,000 |
| Add : Freight Costs | —- | 4,000 |
| Add : Duty & Taxes Paid | —- | 2,000 |
| Less : Normal Loss (units) | 10 | —– |
| Landed cost of ZQ (Raw Material) | 490 | 26,000 |
| Cost Per unit = RS. 26,000/490 units = 26,000/490 = 53.06 per unit. |