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If I use landed cost to distribute freight when receiving a P.O., does this actually change the item cost in inventory, or is it just for reporting on the "PO Receive Summary"?
If it changes the actual cost, then what happens if we are not consistent in applying freight to some items, and not to others? I mean, some will get expensed for the period as freight and some will be allocated to inventory (asset) costs?
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Your concern, if I understand it correctly, is what happens if freight is not distributed because of an oversight?
When a dollar value is entered into the Freight field of a purchase order, that freight charge is used and reported in various places. This could cause some confusion.
At the PO Summary Screen, it is a general practice to choose the Landed Cost section and then distribute the freight charges over the received inventory. This can be done by weight, cost, or number of items.
Here are the key indicators showing that freight has been calculated into the cost (and what happens if at PO summary the costs are not applied)
Inventory List
1) pricing tab - Unit Cost will include freight charge (will be omitted)
2) stock tab - Landed Cost will include freight charge (will be omitted)
3) vendors tab - does not show freight charge (no change)
Inventory Detail
4) Last Order Cost - does not show freight charge (no change)
5) Unit Cost - will include freight charge (will be omitted)
6) retail pricing - will be marked up based on landed cost which includes freight charge (will not be marked up when choosing Recalc)
Accounting
7) shows total of purchase order with freight included (no change)
8) checkbook entry shows total of PO with freight included (no change)
9) general ledger shows debits and credits with freight included (no change)
Sales
10) at the invoice screen if you choose to show costs the landed cost will be displayed (only shows last cost without freight)
11) at the invoice history screen if you choose to show costs the landed cost will be displayed (only shows last cost without freight)
Reports
12) all sales reports showing profit will factor in the freight charge (profit will be misreported because freight charge is missing)
Indicators in PFW will not be updated if the freight charges have not been distributed at the PO Summary screen.
REPORTS
Vendor Valuation report does NOT include the freight charge.
Inventory Valuation report DOES include the freight charge.
Vendor Inventory report does NOT include the freight charge.
AP Batch report DOES include freight charge
Purchase Orders By Date does NOT include freight charge
Purchase Order Summary DOES include freight charge
Freight Summary Report does show purchase.
SUMMARY
If, by oversight, you do not apply freight charges to items at the PO Summary screen, then several key areas will not show the true cost of the item. This will result in skewed profit reports.
CORRECTIVE ACTIONS
You can use Cost Verifier and change costs of invoiced items which did not have freight charges included. This is tedious work, but it will correctly reduce the profit report.
(I have not yet found a way to take corrective actions on inventory not yet sold.)
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