Inventory - Landed Cost

I simply add the Courier / Freight / Transport cost to the customer’s invoice. It is nice and tidy and the buyer understands. If it is a container load of product / material moved into inventory, I generally work the transport cost into the landed cost like you have done. If in the next batch of product there is a variation in landed cost those items will have a suffix to the SKU number alerting the inventory manager to the price shift. This product even though identical will have a different selling price. Fact is selling price will fluctuate with economic conditions. I also apply first in first out with the inventory. Lastly you could position your profit to handle / buffer both the up and down swing of the changing landed costs.

I understand your problem better. I will have to leave it to the developer to think about how to handle identical stock that has a different landing cost. I buy to order so I don’t have this issue. I just include the delivery charge within the purchase price and sell straight on to the client. So its not been a problem for me, but I can see what you mean.

@dalacor, you might also think about using Disbursements if all your purchases are passed straight through to the customer. That way, you wouldn’t need to worry about inventory at all. Manager will handle markups or discounts automatically, as well. All my purchases of materials fall into this category, and I’ve been very pleased. I renamed the accounts to Billable Expenses so it makes more sense. I have suggested some renaming to @lubos in this thread: Renaming Disbursements tab.

Disbursements is not meant to be used for buying and selling inventory. It is meant to be used for expenses that are incurred during course of job that cannot be quoted beforehand. I quote first, then order and then invoice

Quoting using Disbursements

Lubos said that for what I am doing, disbursements is not suitable. This applies to sub contracting and I definitely prefer using the inventory for my sales as I can track what I sell a lot of etc.

I appreciate that you like disbursements but you are not meant to use it for inventory purchases and sales even if you are buying and selling immediately.

I definitely agree that Disbursements is not meant for buying or selling inventory. And I apologize that it slipped my mind that we had exchanged thoughts on this subject previously. I can see that quotes might be easier if you can rely on pricing information already entered via inventory. My only point was that inventory isn’t necessarily essential for what other participants in this thread are doing. You can still include materials pricing in a quote to a customer based on a quote from a supplier without entering the item into your inventory system. In fact, that’s quite common for new or custom products being proposed to an end user. The inventory entry occurs only after you are awarded the job and start buying materials. If the purchase is a one-time thing, Disbursements might serve well.

One of the definitions I have always applied is that inventory consists of goods held for production or sale, with “held” being the operative term. Goods passed through on a job don’t qualify as inventory under that definition. They simply create a billable expense to be invoiced.

The important thing, I suppose, is that you follow a rational and consistent protocol.

@Tut think manufacturing orders sounds more like what the OP is doing personally. At least ways that is the impression I am getting. I have not used the manufacturing orders module as I don’t manufacture things - I may sometimes sell an inventory kit but thats another thing.

What exactly are you selling @anoopchintu ? If you are manufacturing something from different materials use the manufacturing orders. If you are selling a kit of one or more items from the inventory, then use inventory and inventory kits, if you are just plain buying and selling goods, then use inventory. If you are using materials on a job and using labour on a job that you have not quoted every item for, then disbursements would be useful.

OK, so if I understand this correctly, it’s about capitalizing delivery expense so it doesn’t show on P&L. It must be capitalized as Inventory on hand.

And the problem is that delivery of these items is by different company than the one selling the item.

So what you are asking is ability to purchase inventory items with ability to enter zero quantity. That way you can allocate delivery costs to the specific inventory item without actually increasing inventory count. Is that correct?

Extremely sorry for the long silence. @lubos Yes that’s exactly what happens to inventory items when stocked.

You can charge ‘other costs’ to inventory and increase the value. i.e. when the invoice comes in for freight or other ‘landed costs’ charge the expense lines to ‘Inventory on hand’, select the item and a quantity of zero. The added cost goes into the inventroy item without increasing the on-hand quantity. In this way the ‘average cost’ goes up and the higher value will be reflected in Cost of Goods sold when sold. As far as I can tell this seems to work fine, the only issue I note is that you lose the ‘nature’ of the cost being added into the inventory value, i.e. there is way to look at the cost/value of the on-hand by cost element - i.e. how much was material/purchase cost, how much was freight/duty etc. but none the less it does allow these costs to be gotten into the inventory valuation.

@alasdair, the problem is that it’s not possible to set quantity to zero on purchase invoices. You can do it on cash transactions or journal entries though.

I’m going to make it possible on purchase invoices too.

Hi @lubos, I have just started using manager and it is fantastic thank you!! - quick question is there any time frame that the above ie create a purchase invoice without having to have a quantity will be implemented? as I too have on costs associated with an inventory item, now I can do a work around and I could use a journal however I would prefer use this method if it is not too far away?

Thanks for the clarification @lubos. Yeah, since (I) I don’t want to lose the nature of the freight or other cost invoice and (ii) if the freight charge on the invoice typically has a single for freight I like to enter it reflecting that fact then - I book to freight expense first then do a JE to allocate to whatever items and quantities I choose. Until an invoice has a header/lines/distributions and you can prorate the freight cost across the other lines creating appropriate distributions, I’m not a fan of being able to enter 0 quantities on the purchase invoice as this would result in entering invoice lines that do not ‘mirror’ whats on the Actual paper invoice. Thoughts?

@SAitchy, it is pretty high on my todo list.

@alasdair, I wouldn’t be too much concerned that zero quantity is not how it’s shown on purchase invoice. Logically speaking, the purchase invoice was for freight of inventory item(s) only. So when categorizing this purchase invoice from accounting point of view, your quantity has increased by zero, value has increased by freight cost. So that’s how it should be entered.

Consider this, purchase invoice could be a single line item of $1,000 but you know that it is for freight of 3 different inventory items. So even though purchase invoice was single line item, you still need to split it into three different line items so the correct cost can be attributed to each inventory item type.

It’s not a big deal if line items on paper invoice don’t match how it’s recorded in your books. It’s common not to match (companies which split common expenses among divisions do this all the time). Your supplier sees the invoice as simple freight income, for you it’s capitalization of one or more inventory items.

The only important thing is that purchase invoice total on paper invoice and in Manager must match and that condition will be met.

If i understood correctly, this is what you meant?

The redacted item with freight in the description is the same item as the one above it. The unit price given is the freight attributable to it.

This adds the cost of freight to the inventory items without increasing the actual inventory on hand?

The only problem is that if you enter quantity “zero”, line item total will be “zero”. I need to make an adjustment to the program which will allow you to use “zero” quantity and still allocate the cost to inventory items. This is not currently possible as you can see (amount column is empty for line items with zero quantity)

Thank you. I did notice that and was wondering if I was missing something.

Wouldn’t it be easier to add freight as one of the rows along with the tax (which is thereafter assigned to the inventory on the purchase order and Carriage inwards accounts respectively)?

That is essentailly what I do now. Book to seprate accounts then make a Jounral entry periodically to capitalize those costs to inventory. The JE will allow zero quantity and value by item. Also allows me not to have to fake up the invoice. If the invoice has one line for freight then I enter one line for freight.

Thinking aloud… It would be nice to one day have a way to ‘pro-rate’ freight and other charges to distributions across all the invoice lines. At present invoice lines and distributions are one in the same…

You have,

Freight…50 in the invoice and then create a journal entry :

Wouldn’t that change the calculation of cogs at the end of the year?

Dear Lubos… is the issue resolved (prgram has been changed) if so can you share some guidelines…

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