What is Average landed cost of products?
Average landed cost is the weighted average landed cost of the total number of units you have in stock. A product may have been purchased at different cost prices.
For example, lets say, you buy 5 pieces @$10 each today. The average landed cost is updated for this product as $10/unit.
Now you make another purchase of 5 pieces @$20 each.
The average landed cost will be updated as $15 by taking the weighted average with the existing inventory. In the example, the cost price was $10 and $20 at different points in time.
Average landed cost is determined by the actual landed cost of each product. Average landed cost is used for stock valuation and calculating the gross profit. Average landed cost is automatically updated when you purchase an item. You can also enter or change it manually in Sumtracker.
How is landed cost used in Sumtracker
Average landed cost is used in reports for cost of goods sold and stock valuation. When you export product list or stock by location, the average landed cost and total landed cost value is exported for each product.
Average landed cost can be updated in the following ways:
Manual Update: Edit individual products from product details or through a bulk CSV upload
Purchase Orders: Automatically update costs through Purchase Orders (POs).
Shopify Sync: Enable "Save Cost from listings" to directly fetch landed cost prices from Shopify. Learn more
Update average landed cost of products individually
Click on Product SKU in Product List
Add Average Landed Cost and save the product
Landed Cost of bundles is automatically calculated by adding the landed cost of its components. You can refer to it from Bundles cost report on Reports page.
Update average landed cost of products in bulk
Export the Product List
Add Average landed cost corresponding to the Product
Import the file
How is average landed cost updated through Purchase Orders
Average landed cost per item for each product is updated through Purchase orders.
Sumtracker calculates the landed cost per unit for each product in a PO using the formula:
Definitions
Line Subtotal = Line Quantity × (Price per unit + Shipping Fee per unit)
Extra Charges for whole PO = Shipping Fee + Duties & Charges applied for the whole PO (Distributed based on Weighted Average)
Currency Conversion Rate = 1 if PO is in default currency; update it if using a different currency.
Let us consider an example of a PO.
Product | Quantity | Price/unit | Shipping fee/unit | Line Subtotal | Tax | Line Total |
Heels | 1 | 100 | 10 | 110 | 18 | 128 |
Handbag | 2 | 200 | 20 | 440 | 0 | 440 |
|
| Total | 550 |
|
|
|
Extra Charges added separately to whole PO = $150
These extra charges will be distributed to the products based on the weighted average of the line subtotals.
Landed Cost Per Unit (using above formula):
Heels = (110 / 1) + (150 × (110 / 550)) = $140
Handbag = (440 / 2) + (150 × (220 / 550)) = $280
You can add extra charges to entire PO using "Edit Shipping & Duties" at the bottom left of the PO (for the entire PO).
You can add extra charges to entire PO using "Edit Shipping & Duties" at the bottom left of the PO (for the entire PO).
After calculating the landed cost, we calculate the new average landed cost price as follows
Points to note:
Line taxes are excluded from cost price calculations.
Mark PO receive notes as final—only then will the landed cost be calculated from Purchase Orders.
The cost of a product will not be updated if the purchase price in the PO is set to 0.
Here's how the calculation for new cost price is done with simple examples:
Case 1: Receiving New Stock | Existing inventory = 10 units Existing average landed cost = 10 USD/unit. You received 10 units @ 6 USD/unit. The calculation which will happen is New Average landed cost = (10 x 10 + 10 x 6)/(10 + 10) = 8 USD/unit |
Case 2: Some Inventory Sold, New Stock Added | Lets say you sell some pieces and now you have 5 units left. You receive 10 units at 5 USD/unit. New average landed cost = (5 x 8 + 10 x 5)/(5 + 10) = 6 USD/unit |
Case 3: All Inventory Sold, New Stock Purchased | Lets say you sell all pieces. Now you buy 10 units at 4 USD/unit. New average landed cost = (0 x 6 + 10 x 4)/(0 + 10) = 4 USD/unit |
Case 4: No Landed Price Set Previously | Let’s say that you haven’t updated the average landed cost for a product yet. Existing inventory = 10 units Existing average landed cost = 0 USD/unit. You received 100 units @ 6 USD/unit The new average landed cost will be 6 USD/unit |