Landed Costs vs. Purchase Burdens: Charging Fair Prices in a Global Marketplace
As the old song goes “It’s a small world after all,” and never has the world been smaller than in today’s global marketplace. It’s not uncommon to purchase a product in one country and then turn around and sell it in another. In fact, many of our clients buy their products overseas and then sell them domestically.
Knowing how to price products can be challenging, especially when you consider freight, duty, brokerage, and sometimes even special handling fees. Thank goodness Visual ERP has several options, including Landed Costs and Purchase Burdens.
Landed Costs allows you to link the freight, duty, brokerage (FDB) or any cost to the purchase. This increases the material cost bucket in Visual ERP when the AP invoice is linked to the purchase receipt. On the other hand, Purchase Burdens can be set up by part—either as percent of the purchase or an amount per unit. These values can be different by part, and Visual ERP will automatically add this cost to the part when received.
But what if there were a different way? In some situations there may be. If you have purchases linked to work orders you could charge the freight, FDB directly to the work order via an Accounts Payable Invoice.
Each of these options has different benefits, as well as drawbacks. It’s important to understand your specific business needs in order to select the option that’s best for you. The grid below outlines Visual ERP’s available options.
|Landed Cost||Purchase Burdens||Adding to Work Order|
|Cost Bucket||Material||Burden||Material or Service|
|Timing||When AP Invoiced Recorded||When purchase is received||When AP Invoice recorded|
|Accounting||Accounts Payable person is required to associate the FDB with the purchase receivers. If there are multiple different parts or even PO’s associated with the invoice the costs would need to be allocated. This could make recording AP cumbersome.||Accounting entry would be DR Inventory and CR Purchase burden applied (based on GL Interface Table). When the FDB bill is recorded, it is posted to the applied account. Any major variances between the actual cost and the estimated are accumulated in this account.||AP link to work order. Would need to allocate if multiple receivers lines associated with FDB invoice.|
|When Used||Use when desired.||Applies to all purchases for a specific part.||Use when desired. Some clients may do only when dollars are significant.|
|Precision||Related back to specific FDB invoices but if allocated not exact.||Estimated based on historical averages. Would not take into account extenuating circumstance like a rush-charge.||Related back to specific FDB invoices but if allocated not exact.|
|Can it be Turned Off?||No. Once enabled the feature is always available.||Yes. Remove the burden from part maintenance.||Yes. Stop using.|
|On Going Maintenance||None||Monitor rates & update as needed using open for edits feature or scripts.||None|
When you want all the costs in your product, Visual ERP gives you plenty of options tailored to your needs.