Adding Landed Costs to Items' Costs

On release of the landed cost document, the system generates the inventory adjustment that updates the items' cost in inventory according to the allocated landed cost amounts and the valuation method of these items. The following sections describe how the system updates costs for the items of purchase receipts and transfer receipts.

Cost Updating When Landed Costs Are Allocated to Purchase Receipts

Upon release, an inventory adjustment updates the inventory costs of items differently depending on the valuation method of the item:

• For inventory items with the FIFO valuation method, the cost on the particular cost layer (created by the purchase receipt) is updated as follows:
  • If the layer still has the original quantity, the cost of all items on the layer is updated, and the landed cost amount from the Landed Cost Accrual account is transferred to the Inventory account assigned to the item.
  • If the current quantity on the layer is less than the original quantity, the landed cost amount is moved from the Landed Cost Accrual account to update the Landed Cost Variance account of the stock item and the Inventory account in proportion with the issued from the warehouse and remaining quantities, respectively. (If you need to adjust the sales account on release of the inventory adjustment, you can use the same account for the COGS account and the Landed Cost Variance account.)
• For items with the Average valuation method, the landed cost amount from the Landed Cost Accrual account is transferred to the Inventory account assigned to the item and updates the average cost of the unit.
  Note: At the moment of inventory adjustment release, if some of the units listed on the purchase receipt were issued from the warehouse, the landed cost amount updates both the Landed Cost Variance account of the stock item and the Inventory account of the stock item proportionally to the issued and remaining quantities (as on the original purchase receipt), respectively.
• For items with the Specific valuation method, the landed cost amount from the Landed Cost Accrual account is transferred to the Inventory account assigned to the item and updates the cost of the unit.
  Note: At the moment of inventory adjustment release, if some of the lot/serial items listed on the purchase receipt were issued from the warehouse, the landed cost amount updates both the Landed Cost Variance account and the Inventory account of the lot/serial item proportionally to the issued and remaining items (as on the original purchase receipt), respectively.
• For items with the Standard Cost valuation method, the amount from the Landed Cost Accrual account is moved to the Landed Cost Variance account of the stock item.

Cost Updating When Landed Costs Are Allocated to Transfer Receipts

Upon release, an inventory adjustment updates the inventory costs of items differently depending on the valuation method of the item as follows:

• For items with the Standard cost valuation method, the landed cost amount is moved from the Landed Cost Accrual account to the Standard Cost Variance account. The following transactions are generated:
  • Standard Cost Accrual account: Cr, landed cost amount
  • COGS account: Dr, landed cost amount
• For items with the Average cost valuation method, the landed cost amount moved from the Landed Cost Accrual account to the Inventory account (determined by the posting class of the item) updates the average cost of the unit. The following transactions are generated:
  • Landed Cost Accrual account: Cr, landed cost amount
  • Inventory account: Dr, landed cost amount
  Note: At the moment of the release of the inventory adjustment, if some of the units (listed on the transfer receipt) were issued from the warehouse, the landed cost amount updates both the Landed Cost Variance account and the Inventory account of the item proportionally to the issued and remaining quantities (as specified on the original transfer receipt), respectively.
• For items with the Specific cost valuation method, the landed cost amount moved from the Landed Cost Accrual account to the Inventory account (determined by the posting class of the item) updates the cost of the unit. The following transactions are generated:
  • Landed Cost Accrual account: Cr, landed cost amount
  • Inventory account: Dr, landed cost amount
  Note: At the moment of the release of the inventory adjustment, if some of the units (listed on the transfer receipt) were issued from the warehouse, the landed cost amount updates both the Landed Cost Variance account and the Inventory account of the lot/serial item proportionally to the issued and remaining items (as specified on the original transfer receipt), respectively.
• For inventory items with the FIFO valuation method, the system creates a new cost layer based on the transfer receipt (this layer has the date and the quantity from the transfer receipt) and the amounts moved between accounts vary as follows, based on the quantity of the layer:
  • If the layer still has the original quantity, the cost of all items in the layer is updated, and the landed cost amount from the Landed Cost Accrual account is transferred to the Inventory account assigned to the item.
  • If the current quantity in the layer is less than the original quantity on the receipt, the landed cost amount is moved from the Landed Cost Accrual account to update the Landed Cost Variance account and the Inventory account in proportion to the sold and unsold quantities, respectively.

An Example of Cost Updating for a Transferred FIFO Item

If a stock item with the FIFO valuation method was transferred from one warehouse to another, a new cost layer for the transferred quantity is created with the date of the transfer receipt.

The history of receipts in the table below illustrates how the landed costs update the cost of the transferred item with the FIFO valuation method.