Scenario
User is managing a standard cost inventory item in NetSuite. When they allocate landed costs (e.g., shipping, customs duties) to this item through item receipts or vendor bills, they observe that these costs are posted to the price variance GL account rather than being added to the inventory asset account. They are wondering why this happens and how they can adjust the process to capitalize these landed costs into the inventory asset value.
Solution
Why Landed Costs Are Charged to the Price Variance Account
In NetSuite, standard cost inventory items follow a specific costing methodology. By design:
- Landed costs are not capitalized into the inventory asset account.
- Instead, they are treated as variances and posted to the price variance GL account.
- This occurs because standard costing tracks the difference between expected (standard) costs and actual costs. The inventory asset value is fixed at the standard cost defined for the item at the time of the transaction.
- Additional costs like landed costs are considered deviations from the standard cost and are therefore recorded as variances.
This is the default behavior for standard cost items, ensuring consistency in cost tracking and variance reporting.
How to Capitalize Landed Costs
If your business requires landed costs to be included in the inventory asset value, you can achieve this by incorporating them into the planned standard cost record and then revaluing the inventory item. Follow these steps:
- Create a Cost Category for Landed Costs
- Go to Setup > Accounting > Accounting Lists > New.
- Select Cost Category.
- Enter a Name (e.g., "Landed Cost Category").
- Set the Cost Type to Landed.
- Choose an Expense Account (used for variance tracking if applicable).
- Save the cost category.
- Create an Other Charge Item for Purchase
- Go to Lists > Accounting > Items > New.
- Select Other Charge for Purchase.
- In the Cost Category field, select the category created in step 1.
- Optionally, select an Overhead Type.
- Enter the Purchase Price (for percentage-based costs, input the percentage, e.g., 5% as "5").
- Save the item.
- Update the Planned Standard Cost Record
- Open the Planned Standard Cost record for the item.
- Add a new line and select the Cost Category from step 1.
- Enter the landed cost per unit (manually calculate this based on your landed cost allocation).
- Set the Component to the "Other Charge for Purchase" item from step 2.
- Save the changes.
- Revalue the Inventory Item
- Go to Lists > Accounting > Revalue Standard Cost Inventory.
- Select the appropriate Standard Cost Version and Adjustment Account.
- Choose the item to revalue.
- Click Submit to update the standard cost, now including the landed cost.
Key Outcomes
- After revaluation, the inventory asset value reflects the updated standard cost, which includes the landed cost.
- You no longer need to allocate landed costs to item receipts or vendor bills for this item. Use the Memo field to note related bills, as no hyperlinks will be generated.
Additional Considerations
- Fixed Landed Costs: This method works best if landed costs are consistent. The new standard cost will apply to all future transactions for the item-location combination.
- Variable Landed Costs: If landed costs fluctuate per purchase, you must repeat this process (update the planned standard cost and revalue) each time, which updates the standard cost and affects subsequent GL postings.
- Limitations: NetSuite’s standard costing system doesn’t allow direct capitalization of landed costs without revaluation, as it prioritizes maintaining the predefined standard cost.
- Variance Reporting: Once incorporated into the standard cost, landed costs don’t generate separate variance reports. If you allocate landed costs post-revaluation, they will still be treated as variances.
- Assembly Items: Like inventory items, standard cost assembly items also post landed costs to the price variance account, not tracking them separately.
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