Landed Cost Voucher

Landed Cost refers to the total final cost of an item after it reaches the buyer’s location and becomes ready for use or sale. It is not limited to the purchase price alone, but includes every expense incurred to bring the item into its usable condition.

These additional costs typically include shipping and freight charges, customs duties, insurance costs, taxes, currency conversion differences, unloading charges, and other logistics-related expenses. Depending on the purchase type, some of these components may or may not apply, but all relevant costs must be considered for accurate valuation.

What is Landed Cost?

Imagine you are buying a washing machine. The product may be cheaper in a distant city, but once you add delivery charges, installation costs, and travel expenses, the total cost may exceed the nearby store’s price. Even though the base price is lower, the final landed cost becomes higher due to additional expenses.

In business operations, landed cost plays a critical role in determining product profitability. Without considering all associated costs, companies may underestimate true product cost, which leads to incorrect pricing decisions and distorted margins.

Many organizations struggle with landed cost tracking because expenses are often received at different times or from different vendors. ERPNext solves this by providing a structured mechanism to capture, distribute, and adjust these costs against inventory valuation.

1. Prerequisites

Before creating a Landed Cost Voucher, it is important to ensure that the base procurement and stock documents are already in place. These form the foundation for calculating accurate landed cost.

• A Purchase Receipt or Purchase Invoice (with Update Stock enabled) must exist, as this represents the actual receipt of goods into inventory and establishes the base item value.
• A separate Purchase Invoice or expense document should be created for additional costs such as freight, insurance, customs duty, or handling charges that are not part of the original item price.

These documents together allow ERPNext to compute the final landed cost and distribute it accurately across all received items.

2. How to create a Landed Cost Voucher

• Navigate to Stock > Tools > Landed Cost Voucher and create a new voucher to begin the cost allocation process.
• Select the Receipt Document Type, such as Purchase Receipt or Purchase Invoice. Multiple receipts can also be included if costs need to be distributed across more than one transaction.
• Choose the relevant documents. ERPNext will automatically fetch supplier details, totals, and linked items to ensure consistency.
• Click Get Items from Purchase Receipts to pull all inventory items that need to share the landed cost.
• Decide how costs should be distributed—either based on quantity or item value. This determines how fairly the additional charges are allocated.
• Enter all additional charges such as freight, customs duty, or insurance in the Taxes and Charges table along with their respective expense accounts.
• Save and submit the document. ERPNext will automatically update valuation rates based on the calculated landed cost.

3. Related Actions

3.1 Adding Landed Cost in Purchase Receipt

Instead of using a separate voucher, landed costs can also be added directly during Purchase Receipt creation. This is done using the Taxes and Charges table where additional expenses can be recorded at the time of receiving goods.

This approach is useful when all cost components are known in advance. However, in real business scenarios, many charges such as freight, customs, or handling fees are received later, making it difficult to include them at the time of purchase.

In such cases, Landed Cost Voucher becomes more practical because it allows users to update inventory valuation after the purchase transaction is completed.

3.2 What happens on submission?

• ERPNext recalculates the Valuation Rate of all affected items by including the newly added landed cost components.
• If Perpetual Inventory is enabled, accounting entries are automatically posted to adjust Stock-in-Hand and related expense accounts, ensuring financial records stay accurate.
• For already sold items, the system also adjusts future Cost of Goods Sold (COGS) entries to reflect corrected valuation.

3.3 LCV for Stock Entry

From ERPNext version 16, Landed Cost Voucher can also be applied to Stock Entries created for manufacturing purposes. This helps include additional production-related costs such as electricity, machine usage, or factory overheads into the final product cost.

3.4 LCV for Subcontracting Receipt

Landed Cost Voucher can also be used for subcontracted goods received from external manufacturers. This ensures that additional costs like freight, duties, or service charges are included in the final valuation of outsourced production.

3.5 Vendor Invoices

ERPNext also allows linking vendor invoices to Landed Cost Voucher to ensure that total landed cost matches actual supplier billing. This is particularly useful when logistics or services are provided by multiple vendors.

4. Key Benefits

• Provides complete and accurate product costing by including all indirect and hidden expenses.
• Improves pricing decisions by reflecting the true cost of procurement and logistics.
• Ensures correct inventory valuation and strengthens financial reporting accuracy.
• Helps businesses identify real profitability at product level instead of just purchase price margins.

5. Related Topics

• Purchase Receipt
• Stock Entry
• Subcontracting Receipt
• Warehouse Valuation