How it works
The Standard Cost on the Item Card is set to 110.00 and this includes the expected Landed Cost (freight) associated to the Item. The Overhead Rate and Base Cost should be set to 10.00. Business Central always posts at Standard Cost regardless of the Purchase Line value.
A separate Landed Cost Accrual Account, setup against the Landed Cost Type, holds the freight liability until the freight invoice arrives. Any difference between expected and actual freight is posted to a Landed Cost Variance Account which is also setup against the Landed Cost Type.
Stage 1 - Purchase Receipt
Business Central posts a single expected Value Entry for the full Standard Cost. The Landed Cost value is reclassified to the Landed Cost Accrual Account.
|
Account |
Debit |
Credit |
Source |
|
Inventory (Interim) |
110.00 |
BC - Expected Value Entry at Standard Cost |
|
|
Invt. Accrual Acc. (Interim) |
110.00 |
BC - Expected Value Entry |
|
|
Invt. Accrual Acc. (Interim) |
10.00 |
Reclassify Landed Cost Portion |
|
|
Landed Cost Accrual Account |
10.00 |
Reclassify Landed Cost Portion |
Balances: Inventory (Interim) 110.00 Dr ~ Invt. Accrual (Interim) 100.00 Cr ~ Landed Cost Accrual Account 10.00 Cr
Stage 2 - Material Invoice
Business Central reverses the expected cost and posts an actual cost. The cost is split into a Direct Cost Value Entry (100.00) and an Indirect Cost Value Entry (10.00) based on the Purchase Line's Overhead Rate.
|
Account |
Debit |
Credit |
Source |
|
Purch. Account |
100.00 |
BC - Purchase invoice line |
|
|
Payables Account |
|
100.00 |
BC - Vendor liability |
|
Inventory (Interim) |
|
110.00 |
BC - Reverse expected cost |
|
Invt. Accrual Acc. (Interim) |
110.00 |
|
BC - Reverse expected cost |
|
Inventory |
100.00 |
BC - Actual Direct Cost Value Entry |
|
|
Direct Cost Applied |
100.00 |
BC - Actual Direct Cost Value Entry |
|
|
Inventory |
10.00 |
|
BC - Actual Indirect Cost Value Entry |
|
Overhead Applied |
10.00 |
BC - Actual Indirect Cost Value Entry |
No Purchase Variance - the material invoice plus overhead matches the Standard Cost exactly.
Balances: Inventory 110.00 Dr ~ Landed Cost Accrual Account 10.00 Cr ~ Payables 100.00 Cr
Stage 3 - Landed Cost Invoice
When you set the Landed Cost Type Code on the purchase line, the Type is set to G/L Account using the Accrual Account defined against the "Landed Cost Type". Business Central posts the invoice against this account. A variance is then posted to clear any accrual for any difference between the expected and actual cost.
|
Account |
Debit |
Credit |
Source |
|
Landed Cost Accrual Account |
15.00 |
BC - Purchase invoice line |
|
|
Payables Account |
|
15.00 |
BC - Vendor liability |
|
Landed Cost Accrual Account |
5.00 |
LC - Clear remaining accrual |
|
|
Landed Cost Variance Account |
5.00 |
|
LC - Freight overspend to P&L Variance Account |
Final Position
The Item's inventory cost will stay at the Standard Cost of 110 (which includes the expected freight cost) and the 5 overspend sits in the Landed Cost Variance Account on the Income Statement, separate from the inventory valuation. Cost of Goods Sold when the item is sold will be 110.
|
Account |
Balance |
Type |
|
Inventory |
110.00 |
Balance Sheet |
|
Payables (goods supplier) |
100.00 Cr |
Balance Sheet |
|
Payables (freight supplier) |
15.00 Cr |
Balance Sheet |
|
Landed Cost Variance Account |
5.00 Dr |
Income Statement |
|
All interim and intermediate accounts |
0.00 |
Cleared |