Inventory - Landed Cost

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,

Product…100
Product…100
Freight…50 in the invoice and then create a journal entry :
Freight
Inventory…
??

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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Thanks for the update … i can help a bit but still the issue is: We as importer

  1. We make the payment to supplier in advance
  2. We receive good after one month
  3. We pay the bill of clearing agency after one month

So the above transactions cannot be post at one time … ??? please advise is there any way to allocate the expenses in inventory cost even by making seprate entries…

Also is there any way to manage stock by First In First Out (FIFO)…???

1 when you make advance to supplier follow this.

Go to Spend Money and select Supplier Credit under Account and select the supplier.

2 When Goods are received, issue a purchase invoice to the goods supplier. Manager will apply the credit paid in advance so the invoice will immediately show PAID IN FULL.

3 When the Clearing house bill arrives raise a purchase invoice to the clearing agency, but go to Inventory on hand and select the inventory but don’t enter any quantity there, the amount will be capitalised to the inventory cost. See the picture below for clarification.

This will increase the cost of inventory but the inventory quantity will be the same so the average cost of the inventory will reflect the clearing cost too.

So you can comfortably pay your two vendors separately.

The last time I checked, Manager was using FIFO.
In the future users must be able to select either FIFO or Weighted Average. Companies with a Policy of Weighted Average will have problem switching to manager because a change in policy will require a retrospective application which will be daunting.

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Actually, Manager uses average cost method. See [16.3.50] Added "Average cost" column to "Inventory Items" tab for some related information.

@Tut wow , I thought the average cost thing here was just to guid users to avoid pricing inventory below average cost of the inventory.
See


I am introducing people to manager.io all the time so I have to clarify my confusion, I need @lubos’ comment.

Thank You Tut

Hmmmmmm. I see in the thread that you posted a screen shot of that in Nov 2014 @lubos said FIFO. In May 2014, at What inventory system is adopted by Manager? he said weighted average. In June 2015 he said perpetual weighted average cost, and cited the same forum topic. In February 2014, at How to treat inventory items with no price, he also said perpetual weighted average cost.

Manager is using perpetual weighted average which is the most accurate method to track cost of goods sold. I came to conclusion that FIFO should never be used actually.

Even this topic demonstrates why FIFO (or LIFO) is harmful. When you capitalize delivery costs to inventory items you are essentially adding cost to inventory on hand without increasing quantity. How do you imagine FIFO (or LIFO) should handle this… and that’s just one example where FIFO falls short.

Here is very good video which explains how perpetual weighted average works.

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