Landed cost is what a product really costs you by the time it's on your shelf: the supplier's price, plus international freight, customs duty, customs broker fees, local cartage and the exchange rate you actually paid. If only the supplier's price goes into the cost of your stock, every product looks cheaper than it is and your margins look better than they are. Landed cost calculation means spreading those extra bills across the products on each shipment, so the inventory system and Xero or MYOB both carry the true cost.
Why margins look wrong without it
Picture a container from overseas. The supplier's invoice is one bill. The freight forwarder, the customs broker and the local trucking company send their own bills, often weeks later, and usually to the office rather than the warehouse.
If those extra bills are coded straight to a freight or duty expense account:
- Product costs are too low, so gross margin on every sale looks too high.
- Expenses are too high in the month the bills arrive, which may not be the month the stock is sold.
- Stock on the balance sheet is understated.
- Pricing decisions are made on the wrong cost. A product that seems to make good money may barely break even once freight and duty are counted.
Overall profit across a year may come out roughly right, but profit by product, customer and month will not. That's usually where the questions start.
What goes into landed cost
Check with your accountant which costs should be included for your business. Commonly:
- Supplier price, converted to Australian dollars.
- International freight and insurance.
- Customs duty.
- Customs broker and clearance fees.
- Port, terminal and local delivery charges.
Import GST that you can claim back is normally not part of the cost of the stock, because you get it back. Confirm the treatment with your accountant, and check current duty and GST rules with the Australian Border Force and the ATO.
How landed cost calculation works
The extra costs for a shipment are added up, then shared across the products on it. The usual ways to share them are:
- By value: dearer items carry more of the cost. Simple, and common for duty, which is usually charged on value.
- By quantity: every unit carries the same amount.
- By weight or volume: heavy or bulky items carry more. Often fairer for freight.
For example, if a shipment has two products, one small and expensive and one large and cheap, sharing freight by value loads most of it onto the small item, while sharing by volume loads it onto the large one. Neither is wrong, but the choice changes your product margins, so pick one deliberately and use it consistently.
Exchange rates
If you pay suppliers in US dollars or another currency, the rate on the supplier's bill and the rate on the day you pay are usually different. Decide which rate goes into the stock cost and how the difference is treated. In most set-ups the bill's rate sets the stock cost and later movements go to an exchange gain or loss account, but confirm the right treatment with your accountant.
Where it should happen: the inventory system, not the ledger
Xero's and MYOB's built-in inventory features are basic. They record what a bill says an item cost; they aren't designed to spread a separate freight bill across many items. Unleashed, which sells an inventory add-on, makes this point in its own guide to Xero's limits.
Inventory systems such as Cin7 and Unleashed, and ERPs such as MYOB Acumatica or ERPNext, do support landed cost. Typically you:
- Raise the purchase order with the supplier in their currency.
- Add the extra costs to the purchase or shipment: freight, duty, broker fees, as estimates first if the bills haven't arrived.
- Choose how to share them (value, quantity, weight or volume).
- Receive the stock. The system works out the landed cost of each item and updates its average cost.
- Enter the real bills when they arrive, and let the system adjust the cost of stock still on hand. Unleashed and Cin7 both describe re-costing a purchase after the goods are received.
- Let the integration post to Xero or MYOB, so the stock value and cost of goods in the ledger match.
The bills from the freight forwarder and broker need to come in through the inventory system, linked to the shipment, not be keyed straight into Xero or MYOB. If they go straight into the ledger, the inventory system never sees them and your costs stay wrong.
Common problems
- Freight bills keyed into Xero or MYOB as an expense instead of being linked to the shipment.
- Bills arriving after the stock is sold. Some systems can't add cost to stock that has already gone, so the late cost has to go to cost of goods or a variance account. Decide the rule in advance.
- One freight bill covering several shipments. It has to be split before it can be shared out.
- Estimates never replaced by the real bills.
- Stock value in the inventory system and the ledger drifting apart. A monthly inventory reconciliation catches this; our inventory management consultant page explains how we help.
When an app is enough, and when it isn't
If you import a few containers a year with one forwarder, the landed cost features in Cin7, Unleashed or your ERP will probably cover it once set up properly. A Cin7 or Unleashed partner can do that.
It gets harder when freight and broker bills come from several parties, arrive through a bill-capture app or EDI, cover several shipments, or need to reach a second entity. That's the kind of work our landed cost and stock integration service covers: getting every cost bill linked to the right shipment and the right numbers into the ledger. We also help wholesale and distribution businesses report true margin by product and customer once costs are right.
Frequently asked questions
What is landed cost?
The full cost of getting a product into your warehouse: the supplier's price plus freight, duty, broker fees and other charges, converted at the exchange rate you used.
How do you calculate landed cost?
Add up the extra costs for a shipment, then share them across the products on it by value, quantity, weight or volume. Add each product's share to its purchase price to get the landed cost per unit.
Can Xero calculate landed cost?
Xero's built-in inventory doesn't share freight and duty across items for you. Importers usually use an inventory system such as Cin7 or Unleashed, or an ERP, to calculate landed cost and post the results to Xero.
Should freight be an expense or part of stock cost?
Freight to get stock into your warehouse is usually part of the cost of the stock, while freight to deliver to customers is usually a selling expense. Check with your accountant for your situation.
What if the freight bill arrives after we've sold the stock?
The cost can't go onto stock that's gone, so it's normally charged to cost of goods sold or a variance account. Agree the rule with your accountant so it's handled the same way every time.
If your margins don't look right and you import stock, book a free initial chat. We'll tell you plainly whether your inventory system can already do it or what needs connecting.