A purchased item’s landed cost is the total price of the product once it has arrived at the buyer’s door. The landed cost includes the original price of the product, all transportation fees (both inland and ocean), customs, duties, taxes, insurance, currency conversion, crating, handling and payment fees.
In a future post I’m going to look at calculating the transportation fees using Transportation management – but first let’s wind back to the fundamentals of calculating a landed cost in Dynamics AX – which is to use miscellaneous charges on purchase orders.
In December 2014 a new option was created in Dynamics AX, go to Procurement and sourcing > Setup > Procurement and sourcing parameters and on Updates tab you’ll see an option ‘Generate charges on product receipt’.
I’ve set this on (and I’ve also checked that I’ve selected ‘Post product receipt in ledger’ in the Accounts payable parameters).
Now we’re going to setup a simple example based on an importer/distributor who has decided to add 15% to purchase prices to calculate the landed cost.
First we’ll setup an Item charge group, Procurement and sourcing > Setup > Charges > Item charge groups:
Note that you can also access this form from Accounts payable. Accounts receivable, and Inventory management – it’s the same form.
We can setup a similar code for classifying our Vendors, Procurement and sourcing > Setup > Charges > Vendor charge groups:
Again, this form can be accessed from other modules.
Next we setup a charge code. This defines how the charge will be posted. Procurement and sourcing > Setup > Charges > Charges code:
Define a Charges code, and Description and then define the sales tax group that applies. Because we’re heading towards defining a simple percentage increment to our purchase price I’m leaving the Item sales tax group blank.
For a landed cost, you must set the Debit type option to be Item. The credit type will depend on whether you pay the freight charges to the vendor or to a third party – in my example I’m assuming a third-party, so I set the credit type to ‘Ledger account’ and select the Posting type and Account.
Now we can define that this charge will be allocated to a purchase order line automatically.
Procurement and sourcing > Setup > Charges > Automatic charges:
The default Level is ‘Main’, but we want ‘Line’, and I’m defining the typical Table/Group/All setup using the Item charges group and Vendor charges group we created earlier:
Finally we get to define the currency of the purchase order and the charges code itself, and in my case define it as a 15% surcharge:
So just two more setups, add the Charges group to the vendor, Procurement and sourcing > Common > Vendors > All vendors > Edit:
And to the item, Product information management > Common > Released products > Edit:
While we’re on the item, notice that this item is setup as FIFO, so I’ve ticked ‘Latest purchase price’ and I’ve been lazy and set a Purchase price – but if you’re doing this for real you’ll setup a purchase price trade agreement.
Now let’s create a purchase order for 100 units at $10.00, Procurement and sourcing > Common > Purchase orders > All purchase orders:
As expected or total purchase order price is $1,000.00 (and in this case I’ve picked up an early payment discount). My charges have been added automatically, Financials > Maintain charges:
But they don’t show in the purchase order total, because they are being paid to other companies – not to the vendor on this purchase order.
Let’s confirm the purchase order and post the product receipt, and take a look at the inventory transaction:
No Cost amount on the Overview list grid because we haven’t posted the purchase order invoice yet, but let’s have a look at the Physical voucher:
Our debit to Finished goods inventory is the sum of the purchase price and the automatic miscellaneous charges representing our freight costs – and notice also that the charges posting has inherited the financial dimensions from our purchase order line, which gives you the option of further analysis and reporting.
Now, you’ll recall that the first thing we did was set the new ‘Generate charges on product receipt’ parameter. If that isn’t set (or you’re on an earlier version of Dynamics AX) then the product receipt doesn’t include the miscellaneous charges representing our freight costs.
Just to get to the end of the process, we’ll post the purchase order invoice, and now we can see the financial voucher on the transaction:
The physical voucher’s postings are reversed and inventory’s financially updated.
Again, if the new ‘Generate charges on product receipt’ parameter isn’t set (or you’re on an earlier version of Dynamics AX) then this is the first time that you see a posting of the miscellaneous charges representing our freight costs.
We were all brought up on the concept that in Dynamics AX you can’t change a posted invoice – but here’s an exception that proves that rule. You can adjust the miscellaneous charge postings on a purchase order invoice:
One possible use for this would be to reflect actual (as opposed to estimated) shipment charges. However that doesn’t really fit into this scenario – which is just concerned with a high-level estimate, so I’ll leave that for another post.