COSTING SETUP AND LANDED COST MODULE IN D365 F AND O

Landed cost is a new module introduced in D365 F&O recently by

Microsoft. Main idea of this module is to account final landed cost of the
product after all the different costs incurred during logistics.

The Landed cost module helps businesses streamline inbound shipping

operations by giving users complete financial and logistical control over
imported freight, from the manufacturer to the warehouse. For imported
goods, landed costs can account for 40 percent or more of the total cost
of each imported item. Therefore, the challenge is to provide accurate
estimates for landed costs.

Businesses can use Landed cost to complete the following tasks:

• Estimate landed costs at the time of voyage creation.

• Apportion landed costs to multiple items and purchase orders or
transfer orders in a single voyage.
• Support the transfer of goods between physical locations by
recognizing landed costs.
• Recognize accruals for goods in transit.

Landed cost provides accurate and timely cost estimates for overhead
landed costs. At the same time, it provides increased financial and
logistical visibility into the extended supply chain. It also helps reduce
the administration of costing and costing errors.

More details can be found here

Pre-Requisites: Enable Landed cost in feature management.

Note: In this blog main focus will be on understanding financial
transactions, warehouse or SCM related activities will not be explained
in detail.

Let us understand from one scenario:

Scenario: We have one Item “I0001” which we are purchasing from a

vendor “Acme Office Supplies”, item purchase price is “1000 USD”.

Now this product is transported by a shipping(freight) vendor “Parcel

Carrier”, now during transportation shipper has charged different costs:

• Freight
• Insurance
• Fuel
• Local Transportation

So, now at the time of purchase order creation we know the estimated
cost for each of this:

• Freight is 100 USD per Quantity

• Insurance, 10 % of Item purchase price = 100 USD (10% of 1000
USD)
• Fuel is 1 USD per measurement, so let’s say its 20 KG = 20 USD
 • Local Transportation is 10 % of freight cost. Wich will be 10 USD
(10% of 100 USD)

So now total estimated cost for item will be 100 + 100 +20 + 10 =
230 USD

So, Total item landed cost based on Estimation will be = 1000 +230
= 1230 USD

Let’s say now shipper sends the actual bill as 300 instead 230 USD.

So, my final Landed Cost of item will be 1000 + 300 = 1300, System
should post the adjustment of 70 if Cost is posted based on
Estimation.

Now here we can have three different uses cases:

Use case 1: Actual Freight bill received after Item is received and
invoiced.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230
Estimated cost

Adjustment due to Actual freight Invoice = 70 USD

Use case 2: Actual Freight bill received after Item is sold.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230
Estimated cost

Cost of Good Sold = 1230

Adjustment due to Actual freight Invoice to Cost of Goods sold = 70 USD

Use case 3: Actual Freight bill received before Item is received and
invoiced.

Item Cost at the time of Purchase order Invoice: 1000 + 300 = 1300,
estimated cost will not be considered

Now to perform above use cases, we need to do some costing setup

in Landed cost.

Step-1: Setup Cost Type codes

This is the main setup through which we define all possible different
cost codes which can be part of landed cost. This setup wis quite similar
as “Charge Code” setup.

Landed Cost > Setup > Costing Setup > Cost type Codes.

Step-2: Setup Vendor cost type group/Item cost type group

(Optional)

Landed Cost > Setup > Costing Setup > Vendor/Item cost type group.
This is again similar of vendor charge group/ item charge group which
can be used for defining or filtering costing setup based on groups, these
groups can be mapped to “Vendor”

Step-3: Setup Auto Cost

Landed Cost > Setup > Costing Setup > Auto Cost.

Now here we want to setup auto cost for our transactions, so whenever
any product is transported by any shipped these costs will be applicable.

This is like Auto Charge setup.

Step-4: Setup Landed Cost Parameters

Step-5: Setup vendor as Shipping company

Vendor > Edit > Mis details

This is important else we will not see this as value while selecting
shipping carrier.
Use case 1: Actual Freight bill received after Item is received and
invoiced.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230
Estimated cost

Adjustment due to Actual freight Invoice = 70 USD

Financial Entries Expectation:

1. At the time of Purchase order Invoice

Inventory Debit 1230

Landed Cost Clearing Account Credit 230

Vendor Credit 1000

• Shipper submits actual freight invoice (Using Vendor invoice

Journal).

Landed cost clearing Account Debit 300

Vendor Credit 300

At this time system should post the inventory adjustment to make

the actual inventory cost to 1300 from 1230 by adding 70 USD.

• Adjustment entry (Automatically by system):

Inventory Debit 70

Landed Cost Clearing Account Credit 70

Step-1: Create and Confirm Purchase Order

Step-2: Create Voyage against the “Inbound Purchase Order”

Navigate, Landed Cost > Voyages > All Voyages > New. > Enter
Description and also specify “Shipping Company” (This should be the
vendor which we configured in previous post)
Step-3: Filter require purchase order and Add to staging list.

Note: This involves the warehouse process which I will not explain in
detail, here focus is to understand financial impact
Step-4: View Staging list and Add to new shipping container.

Here we can select attributes which will help in defining the

transportation process like journey template, mode of delivery, ship
date etc…
Step-5: View Voyage and estimated Cost on Voyage

Now new Voyage has been created, select the Voyage and click on
Voyage cost and Cost inquiry.
Here we can see the auto cost added as per our setup, also if require we
can add Cost type code manually.
In cost inquiry we can see the Estimated Cost calculation

Step-6: Post Product Receipt and Invoice for the purchase order

Step-7: View Inventory transaction and Voucher posting.

As we see inventory cost for the product is updated based on estimated
cost.

Step-8: Post Actual Freight invoice from Carrier company and

allocate against Voyage cost lines.

This invoice we record using “Vendor invoice Journal”.

Step-9: View final inventory transactions and voucher posting.
As we see here all the voucher and costs have been posted as per
expectation.
Use case 2: Actual Freight bill received after Item is Sold.

Item Cost at the time of Purchase order Invoice: 1000 + 230 = 1230
Estimated cost

Adjustment for Purchase Cost due to Actual freight Invoice = 70

USD

Adjustment for COGS due to Actual freight Invoice after Inventory

recalculation = 70 USD

Financial Entries Expectation:

1. At the time of Purchase order Invoice

Inventory Debit 1230

Landed Cost Clearing Account Credit 230

Vendor Credit 1000

2. Shipper submits actual freight invoice (Using Vendor invoice

Journal).

Landed cost clearing Account Debit 300

Vendor Credit 300

At this time system should post the inventory adjustment to make

the actual inventory cost to 1300 from 1230 by adding 70 USD.

3. Adjustment entry (Automatically by system):

Inventory Debit 70
 Landed Cost Clearing Account Credit 70

4. Run Inventory recalculations

Inventory Credit 70

COGS Debit 70

Step-1: Create and Confirm Purchase Order

Step-2: Create Voyage against the “Inbound Purchase Order”

Navigate, Landed Cost > Voyages > All Voyages > New. > Enter
Description and also specify “Shipping Company” (This should be the
vendor which we configured in previous post)
Step-3: Filter require purchase order and Add to staging list.

Note: This involves the warehouse process which I will not explain in
detail, here focus is to understand financial impact

Step-4: View Staging list and Add to new shipping container.

Here we can select attributes which will help in defining the
transportation process like journey template, mode of delivery, ship
date etc…

Step-5: View Voyage and estimated Cost on Voyage

Now new Voyage has been created, select the Voyage and click on
Voyage cost and Cost inquiry.
Here we can see the auto cost added as per our setup, also if require we
can add Cost type code manually.

In cost inquiry we can see the Estimated Cost calculation

Step-6: Post Product Receipt and Invoice for the purchase order

Step-7: View Inventory transaction and Voucher posting.

As we see inventory cost for the product is updated based on estimated
cost.

Step-8: Create and Post sales order Invoice, View Calculated COGS
Step-9: Post Actual Freight invoice from Carrier company and
allocate against Voyage cost lines.

This invoice we record using “Vendor invoice Journal”.

Step-10: View final inventory transactions and voucher posting.
Step-11: Run Inventory recalculation to correct COGS
As we see here all the voucher and costs have been posted as per
expectation.

Many times, customer comes up and says that we want to record invoice
for the GIT purchase orders that means the orders which have been
shipped by Supplier but not received at actual warehouse and customer
wants to record the invoice for the same. So, how do we manage this?

Now this can be managed using new Landed cost module. In this process
system will allow you to post Purchase order invoice and hold inventory
in GIT warehouse.

Let us understand by one scenario:

1. Customer creates PO and confirms.

2. Vendors shipped the order along with PO invoice.
3. Customer must record invoice before receiving Goods.

Pre-requites: Enable Landed Cost in feature management.

Please go through earlier blogs in this series to understand “Landed
Cost”.

Setup:

1. Setup terms on Delivery

2. Setup Warehouse with GIT mapping

3. Setup Posting profile for Landed cost GIT inventory account.

Process:

Step-1: Create and Confirm Purchase order

Note: Select Deliver term which has GIT enabled

Step-2: Create and Process Voyage for the Purchase order

Note: Read earlier blogs to see the voyage process.

Step-3: Process Purchase order Invoice

In this process, we will not post product receipt because goods are still
in transit and not received at actual warehouse.

So, PO invoice should be done with orders quantity, once we post the
Purchase order invoice system creates “Goods in transit” order against
the Voyage crated for this purchase order.
Step-4: View Inventory Impact and financial impact on Voyage
screen
Step-5: Now we can finally receive the GIT order from Voyage.

This will transfer the inventory from GIT warehouse to Main

warehouse.
Scenario: We have lot of voyages crated and now we receive invoices
from freight suppliers for all of them, so now if we go with manual
process where we must allocate actual cost against each cost code and
voyage number manually. This is really a time-consuming activity.

Solution:

1. We have additional field cost type code and cost area related
to landed cost in vendor invoice journal data entity which will
help us in creating Debit lines against the Credit line of
vendor invoice
2. We have new data entity Voyage vendor cost invoice
distribution which will help us in linking the different cost
codes to the require Voyage and cost code line

Note: This solution is still at initial stage but this gives a base for us to
auto mate through some customization.

Step-1: Create PO and create Voyage against the same

Step-2: View the cost enquiry estimate vs actual

Step-3: Invoice the PO

All above processes are very well explained in earlier part of the
series.
Step-4: Create Invoice journal, export in Excel and Add additional
fields

Step-5: Import data using excel template

In this example we are assuming that we got two different invoices

for both Freight and Air separately.
Step-6: Prepare and import data to link the Debit (Cost lines) of
journal to exact Voyage and cost code
Step-7: Post journal
Step-8: View posted transactions

We can see actual cost has been posted

That’s it for this blog, hope this help in setting up an automating
this complete process with some small customization.