Costing Setup in Landed Cost Module in Microsoft Dynamics 365 Finance and operations- Part:1

Landed cost is a new module introduced in D365 F&O recently by Microsoft. Main idea of this module is to account final landed cost of the product after all the different costs incurred during logistics.

The Landed cost module helps businesses streamline inbound shipping operations by giving users complete financial and logistical control over imported freight, from the manufacturer to the warehouse. For imported goods, landed costs can account for 40 percent or more of the total cost of each imported item. Therefore, the challenge is to provide accurate estimates for landed costs.

Businesses can use Landed cost to complete the following tasks:

  • Estimate landed costs at the time of voyage creation.
  • Apportion landed costs to multiple items and purchase orders or transfer orders in a single voyage.
  • Support the transfer of goods between physical locations by recognizing landed costs.
  • Recognize accruals for goods in transit.

Landed cost provides accurate and timely cost estimates for overhead landed costs. At the same time, it provides increased financial and logistical visibility into the extended supply chain. It also helps reduce the administration of costing and costing errors.

More details can be found here

Pre-Requisites: Enable Landed cost in feature management.

Note: In this blog main focus will be on understanding financial transactions, warehouse or SCM related activities will not be explained in detail.

Let us understand from one scenario:

Scenario: We have one Item “I0001” which we are purchasing from a vendor “Acme Office Supplies”, item purchase price is “1000 USD”.

Now this product is transported by a shipping(freight) vendor “Parcel Carrier”, now during transportation shipper has charged different costs:

  • Freight
  • Insurance
  • Fuel
  • Local Transportation

So, now at the time of purchase order creation we know the estimated cost for each of this:

  • Freight is 100 USD per Quantity
  • Insurance, 10 % of Item purchase price = 100 USD (10% of 1000 USD)
  • Fuel is 1 USD per measurement, so let’s say its 20 KG = 20 USD
  • Local Transportation is 10 % of freight cost. Wich will be 10 USD (10% of 100 USD)

So now total estimated cost for item will be 100 + 100 +20 + 10 = 230 USD

So, Total item landed cost based on Estimation will be = 1000 +230 = 1230 USD

Let’s say now shipper sends the actual bill as 300 instead 230 USD.

So, my final Landed Cost of item will be 1000 + 300 = 1300, System should post the adjustment of 70 if Cost is posted based on Estimation.

Now here we can have three different uses cases:

Use case 1: Actual Freight bill received after Item is received and invoiced.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230 Estimated cost

Adjustment due to Actual freight Invoice = 70 USD

Use case 2: Actual Freight bill received after Item is sold.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230 Estimated cost

Cost of Good Sold = 1230

Adjustment due to Actual freight Invoice to Cost of Goods sold = 70 USD

Use case 3: Actual Freight bill received before Item is received and invoiced.

Item Cost at the time of Purchase order Invoice: 1000 + 300 = 1300, estimated cost will not be considered

Now to perform above use cases, we need to do some costing setup in Landed cost.

Step-1: Setup Cost Type codes

This is the main setup through which we define all possible different cost codes which can be part of landed cost. This setup wis quite similar as “Charge Code” setup.

Landed Cost > Setup > Costing Setup > Cost type Codes.

Step-2: Setup Vendor cost type group/Item cost type group (Optional)

Landed Cost > Setup > Costing Setup > Vendor/Item cost type group.

This is again similar of vendor charge group/ item charge group which can be used for defining or filtering costing setup based on groups, these groups can be mapped to “Vendor”

Step-3: Setup Auto Cost

Landed Cost > Setup > Costing Setup > Auto Cost.

Now here we want to setup auto cost for our transactions, so whenever any product is transported by any shipped these costs will be applicable.

This is like Auto Charge setup.

Step-4: Setup Landed Cost Parameters

Step-5: Setup vendor as Shipping company

Vendor > Edit > Mis details

This is important else we will not see this as value while selecting shipping carrier.

That’s it for this blog, in next blog will betaking each of the scenario mentioned above and validate the system behaviour.

Thank You !!! Keep reading and Sharing!!!

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