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How to manage Average Landed Costs

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Page Contents:

Points to Note

What is an Average Landed Cost?

Where to check the Average landed cost of your products

Costing Analysis Report

How is the Average Landed Cost used?

Transactions that affect the Average Landed Cost

Points to Note

  • An Average Landed Cost (ALC) is only calculated for products that have a current stock on hand quantity.
  • As Unleashed is a tax exclusive system, tax is not included when calculating a product's ALC.

What is an Average Landed Cost?

An Average Landed Cost (ALC) is the average value calculated for your products on a per unit level. This value is calculated to determine the current value of your product, based on any costs incurred to procure it and add it to your inventory. More specifically, the ALC is the value used to calculate the total stock value per product, given your current stock on hand quantity.

The ALC is calculated as: Average Landed Cost (ALC) = Total Stock Value / Total Stock Qty

Each time the quantity and/or value of a product's updated in Unleashed, it's ALC is recalculated to provide the most up to date average of your product's value. As such, you will notice that your stock's ALC fluctuates in line with your Purchase prices, Assembly costs and Returns. 

NOTE: If the Global Stock on Hand = 0, ALC = 0.

Where to check the Average landed cost of your products

To check an individual product's ALC and review how the product's ALC has changed over time, go to the product record (either via Inventory | Products | View Products or the Global Search function in the top right of Unleashed) and navigate to the Cost tab. The ALC is a non-editable field in the top left of the Cost tab, next to the Last Cost field. 

In the grid of the Cost tab, you will be shown a list of the transactions that have been completed in Unleashed and subsequently affected the product's ALC over time. The headers shown denote the following:

Header Description
Transaction Date The date the transaction was completed and the ALC recalculated.
Product Code Product Code (as shown in the Details tab) of the ALC that was updated
Product Description Product Description (as shown in the Details tab) of the ALC that was updated
Transaction Type Type of transaction completed that caused a recalculation of the product's ALC, e.g. Purchase Order or Stock Adjustment
Transaction Ref The unique reference number of the transaction that was completed.
Trans Qty The number of units included on the transaction 
Trans Unit Cost The unit cost calculated for the product given the transaction's total cost and Trans Qty.
Pre Avg Cost The ALC of the product before the transaction was completed.
Post Avg Cost The ALC of the product after the transaction was completed.
Product Group The Product Group the product's currently allocated to (as shown in the Details tab).

Use the Pre Avg Cost and Post Avg Cost columns to review the fluctuation of your product's ALC over time. 

Costing Analysis Report

You can review the changes that have been made to your stock's ALC's over time across all your products using the Costing Analysis Report. Navigate to Reports | Purchases | Costing Analysis Report, here you can filter by Product Code or Description for a breakdown per product of how the ALC's been impacted, per completed transaction. For more details, see Costing Analysis Report.
Tip: If you create a default grid layout in the Costing Analysis Report, this default will apply to your product's Cost tab too. 

How is the Average Landed Cost used?

The ALC of a product is predominantly used to calculate:

  • Current total stock value
    ALC x Total on Hand Quantity = Stock Value
  • Total Assembly value
    Sum of Component Product ALC's x Component Quantity = Total Assembly Costs
  • Total Shipment value
    Sum of Dispatched Product ALC's x Shipped Quantity = Shipment Value
  • Margin for a Sales Order
    % (Unit Price - ALC) / Unit Price = Margin %

In the instance where a product currently has no stock on hand and therefore has 0.00 as it's ALC, the product's Last Cost will be used as a temporary cost, until stock on hand is added. 

NOTE: The Last Cost may not be accurate to the upcoming ALC of a product and is therefore only considered as advisory. 

Transactions that affect the Average Landed Cost

Any transaction that brings stock into your inventory or incurs a charge will have an effect on your Average Landed Cost, and subsequently the total stock value as a whole. The more precise you are with the costs and prices involved in your transactions, the more accurate the product's ALC will be. And as such, the more reliable your reporting is when understanding your product's contribution to your business.

The following transactions can affect the average cost of a product:

  • Import Stock on Hand
  • Purchase Orders
  • Stock Adjustments
  • Stock Counts
  • Stock Revaluations
  • Assemblies
  • Disassemblies
  • Supplier Returns
  • Credit Notes (when stock is being returned)

Import Stock on Hand

When adding new products to your inventory, you can use the Import Stock on Hand template to add a starting quantity and stock value in bulk. This is especially useful when you're starting your Unleashed journey and implementing it as an inventory solution to your business, as it allows you to upload an immediate starting ALC and quantity per warehouse for your stock, without requiring individual transactions such as Purchases or Stock Adjustments. For more details, see Import/Export Products.

NOTE: The Import Stock on Hand feature is only available to use for products that are new to your inventory, have not been added to any transaction and have never held any stock on hand in your Unleashed account.

Purchase Orders

In a Purchase Order, you will advise the product's purchase price and any additional costs (Cost Lines) incurred during the procurement of the stock. At the point of receipt (and Complete if costs are added after receipting), the total price and cost of the receipted quantity is used to calculate a Landed Cost, which is subsequently used to recalculate the product's ALC within the total stock on hand.

By default, the additional costs which will used to calculate your product's Landed Cost are added as Cost Lines to the Purchase Order, and proportionally distributed across the order lines based on the distribution method selected in your Company Settings. However, you can change the distribution method used per Purchase Order by selecting from the dropdown menu in the Purchase Order's Cost Line. For more details, see Adding a Purchase Order with Cost Lines

Stock Adjustments

In some cases, you will need to adjust the quantity and/or value of your Stock on Hand to replicate any changes that have impacted your physical stock. This could be anything from managing stock loss and damages which subsequently effect how much stock you have available to expiring stock which has reduced in value. To account for these changes and keep your Stock on Hand and ALC accurate you will need to perform a Stock Adjustment. 

By default, when advising a quantity in the Stock Adjustment for a product a proportional value will be automatically generated too, based on the product's current ALC. This helps to ensure your product's ALC remains consistent when adjusting your stock on hand but you have the opportunity to edit the value as necessary. It's therefore worth noting that if you are to amend the generated value it will have an affect on the product's ALC, which will be shown in the Warehouse and Global Values headers of the Stock Adjustment. For more details, see Stock Adjustments

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Stock Count

The Stock Count feature allows you to review your current Stock on Hand in comparison to what is physically available, and subsequently account for any variances to re-align your inventory. When a product's Count Quantity differs from the Stock on Hand quantity for a counted warehouse, an Stock Take Adjustment is made for the product when the Stock Count is completed. This adjustment will proportionally adjust the value of the product, in line with the quantity and therefore triggers a recalculation of it's ALC. 

In the instance when a product's Stock on Hand quantity is zero (thus has a 0.00 ALC) and the Stock Count adds Stock on Hand for it, the product's Last Cost is used to calculate a value for the stock being adjusted in. It's therefore suggested to check the product's ALC after the Stock Count is completed and use either a value only Stock Adjustment or a Stock Revaluation to make any corrections to the product's new ALC. For more details, see Add a Stock Count Entry.

Stock Revaluations

A Stock Revaluation is an import that can be completed which will replace a product's ALC with a new value upon completion. It's a useful tool for updating your stock's ALC in bulk.

The Stock Revaluation's import template will only include products that currently have stock on hand in Unleashed. If a product has no stock on hand, it will automatically have an ALC of 0.00 and will therefore be ignored when populating the Stock Revaluation's template file.

For more details, see Import Stock Revaluation.

Assemblies

To calculate the Total Assembly Cost for an Assembly and therefore the value of the assembled stock, Unleashed sums the ALC of all component quantities and additional costs (either Never Diminishing Products or Supplier Costs). When the Assembly is completed the assembled product's Stock on Hand increases and the Total Assembly Cost is added to the product's stock value, which requires a recalculation of the assembled product's ALC.

The Unit Cost field within an Assembly advises the unit value (ALC or Last Cost if the component has no Stock on Hand) of the component product and this Unit Cost is applied to the component's quantity to calculate component's Total Cost for the assembly. 

Supplier Costs can be added to an Assembly to account for any additional costs, such as labour or transport, that are incurred from a third party during the manufacture of the assembled goods. These costs increase the value of your assembled stock and will therefore have an effect on your assembled stock's ALC. 

Similarly, internal expenses or costs incurred during the assembly process that need to be included but aren't due to be billed from a Supplier can be added as a component to an Assembly using Never Diminishing Products (NDP). The Cost in an NDP's Sale tab is the value that will populate in the Unit Cost field of an Assembly an will therefore add further value to the assembled stock. 

Disassemblies

During a Disassembly, the assembled product's current ALC is used to calculate the Disassemble Cost that's distributed to the component products. As an assembled product's ALC can fluctuate over time the value given to a component product from a Disassembly is not guaranteed to match the Total Cost used during an initial Assembly. It is therefore worth bearing in mind that a component's ALC is expected to fluctuate if it is used within an Assembly and subsequently disassembled. For more details, see Disassemble a product.

Supplier Returns

When completing a Supplier Return either the stock on hand, stock value or both is being adjusted to account for it. As such, the products involved in the Supplier Return will have their ALC's recalculated to align with the remaining stock on hand and value attributed to the product. For more details, see Add Supplier Return.

Credit Notes

When stock has been returned from a Customer's, you will need to add it back in to your inventory for re-sell as appropriate. To keep consistency of your stock's value a Credit will return goods to stock at the current ALC, regardless of the product's value at the time it was originally dispatched. For more details, see Add a Credit Note.

NOTE: If the product has no stock on hand and a Credit Note is completed, returning stock, the product's Last Cost is used to determine the product's returning value. 

How to change Average Landed Cost

To change a product's ALC, you can complete either of the following, provided the product has existing Stock on Hand:

For more details, see How do I update my products' Average Landed Cost.

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