What is landed cost? 6 steps to calculate landed cost accurately

Landed cost is often used in the field of international trade, playing a decisive role in the success of the supply chain process in businesses. Let's find out with 1C Vietnam what the landed cost is and the 6 detailed steps to calculate it correctly through the article below!

1. What is Landed cost?

Landed cost is a term commonly used to describe the total cost that a product incurs when it reaches its final destination (landed) after the transportation and import process. Simply put, the landed cost includes the purchase price of the goods plus all related costs such as shipping, taxes and other fees.

Landed cost is considered an important factor to help businesses optimize profits and maintain competitive advantage.

2. Meaning of landed cost for businesses

Landed cost is not only an accounting concept but also an important tool to help determine the actual price of a product. Thereby, businesses can manage costs appropriately, build effective selling prices and minimize risks related to transportation and import.

Calculating landed costs helps businesses make smart import and export decisions, as well as improve their ability to negotiate and create more accurate contracts.

3. Cost components in landed cost

Landed cost includes many important cost components related to the transportation and import process. Below are the main cost components in landed cost:

• Product cost: The important basis of landed cost, including the purchase price of the goods, currency conversion fees, and adjustments for differences in quantity or quality.
• Shipping costs include all costs associated with moving goods from the point of supply to the buyer such as delivery fees, packaging fees, container costs, port handling fees and inland transportation costs.
• Customs Duties & Taxes: Regulated by the government of the importing country. This includes import duties, VAT, customs handling fees and other taxes.
• Insurance: The cost to protect goods during transportation, usually calculated as a percentage of the value of the goods.
• Handling and storage fees: Includes the cost of unloading, handling and storage at the port, warehouse or distribution center, as well as services such as customs clearance, warehouse rental, palletizing and label.
• Currency conversion: Costs incurred when making purchases in a country that uses a different currency than the importing country, including conversion fees and exchange rate changes.
• Administration and overhead costs: Indirect costs associated with the import process, such as administrative fees, document processing, and regulatory compliance costs.

4. Instructions for calculating landed cost

Calculating costs related to landed cost is a process that requires meticulousness, avoiding errors because there are many cost components in it. Below are detailed instructions on how to calculate landed costs that businesses can refer to as follows:

4.1 Step 1: Identify cost components

Identify all cost components involved in the import process, including shipping method, origin and destination, customs regulations, and other special situations.

4.2 Step 2: Collect cost analysis

Focus on collecting detailed information and invoices from suppliers, transporters, customs agents, insurers and other parties involved in the import process. Businesses need to ensure that these documents clearly detail the costs incurred at each stage of the process.

4.3 Step 3: Currency conversion

Convert all costs to a common currency, using the exchange rate applicable at the time of payment.

4.4 Step 4: Calculate total costs

Sum all the individual cost components to obtain the total landed cost. Businesses need to ensure accuracy by checking and confirming the completeness of cost components.

4.5 Step 5: Allocate costs

Allocate the corresponding landed cost to each imported product based on quantity or value. This step will ensure that costs are divided appropriately between imported products, allowing for accurate pricing and cost analysis.

4.6 Step 6: Update price and financial records

In this step, businesses need to integrate landed costs into their pricing strategy and financial records. This way businesses can ensure that the actual cost of goods is factored into the pricing structure and provide support for the profit analysis process to make the final decision.

Above, 1C Vietnam introduced the concept of " What is Landed cost " and a simple and convenient way to calculate costs. Understanding landed cost is an effective "hand" in supporting strategic decisions on pricing and warehouse management of the business. Don't forget to follow other articles on the 1C Vietnam website to update useful information about corporate governance!