Landed Cost of Imported Components: Duty, Broker and Freight in Unit Cost

To include customs duty in landed cost, add it to the invoice price together with the broker’s fee and freight, then split the total between the lines of the shipment by a chosen base. In the example below, €1,440 of additional costs lift a €9,000 invoice to €10,440, which is 16% more. An enclosure gets almost 28% dearer and a relay 12%, so the allocation method moves the cost of individual lines more than the cost of the whole shipment.

The example is fictional: a 20-person switchgear shop orders power supplies, relays and enclosures from an overseas supplier. The invoice is in US dollars and the company books in euros at 0.90 EUR per USD. The duty rate and service amounts are invented.

What makes up the landed cost of imported components?

The supplier invoice covers the first part of the cost. On top of it come international freight, customs duty, the customs broker’s fee, delivery from the border to the warehouse, and import VAT. The list depends on the delivery terms, but a manufacturer with an imported supply chain gets such lines with every shipment.

As a general rule, accounting standards include import duties, transport and other costs directly attributable to the purchase in the cost of inventory. Taxes that the company can recover are excluded. For a VAT-registered company, import VAT usually goes to input VAT. Your accountant confirms the details for your company.

Currency adds another factor. An invoice in dollars is converted to euros at the accounting rate, and every line of the shipment depends on that rate. In the example it is 0.90 EUR per USD.

What are the input data for the example shipment?

The shipment has three lines. The invoice is in USD and the weight is known from the delivery note.

Value shares are 48% (4,320 / 9,000), 30% and 22%. Weight shares are 200/600, 100/600 and 300/600, which is 33.3%, 16.7% and 50%. The bulky enclosure takes half of the weight and only 22% of the money.

Different service providers issue the additional costs.

The customs value in the example is the invoice plus international freight, 9,000 + 720 = €9,720, and the 5% duty rate is the same for all lines. In a real shipment the customs declaration sets the customs value and the rate.

How do you include customs duty in landed cost?

Duty that is charged on value is split between the lines by amount. The coefficients are the same as the shares above: 486 × 48% = €233.28 for power supplies, 486 × 30% = €145.80 for relays and 486 × 22% = €106.92 for enclosures. Together 233.28 + 145.80 + 106.92 = €486.

The broker’s fee also goes by amount: €57.60 for power supplies, €36.00 for relays and €26.40 for enclosures (€120 in total).

Transport depends on weight, so both parts of the freight are split by kilogram. International freight gives 720 / 600 = €1.20 per kilogram, so €240, €120 and €360 for the three lines. Delivery from the border gives 114 / 600 = €0.19 per kilogram and €38, €19 and €57.

The rows add up to 568.88 + 320.80 + 550.32 = €1,440. Adding the costs to the invoice gives the full value of each line and each unit.

What happens if you split the whole cost pool by value?

Splitting all €1,440 by amount adds 16% to every price. A power supply then costs 10.80 × 1.16 = €12.53, a relay 2.70 × 1.16 = €3.13 and an enclosure 19.80 × 1.16 = €22.97.

Compared with the calculation by service-specific bases, the power supply is overstated by €0.31, the relay by €0.11, and the enclosure is understated by €2.34 (25.30 − 22.97). For the enclosure that is about 9%, because enclosures make up half the weight of the shipment and only 22% of the invoice. The money spent on delivering metal and volume is booked against the electronics.

How does this change product margin?

A switchgear cabinet uses one enclosure, one power supply and four relays. The selling price is €58. Other materials and labor are left out, so what remains is the margin over components.

At invoice prices the components cost 19.80 + 10.80 + 4 × 2.70 = €41.40. The remainder is 58 − 41.40 = €16.60, or 28.6% of the price. With import costs the same components cost €49.61 (25.3032 + 12.2222 + 4 × 3.0208 before rounding). The remainder is 58 − 49.61 = €8.39, or 14.5% of the price.

The difference is €8.21 per cabinet, 19.8% on top of the invoice value. The margin over components is half of what the calculation at supplier prices promised.

Which base fits which cost?

Pick the base by what drives the amount. Duty is charged on customs value, so it is natural to split it by amount. Freight is paid for the weight and volume of the load, so a base by weight or volume is closer to what each line consumed. Cargo insurance depends on value and goes by amount. A broker fee that depends on the number of declarations is split by amount or by quantity, depending on how it is invoiced. Unloading is tied to the number of packages or the weight.

In the example, duty and broker sit on the base “by amount” and both freight lines on “by weight”. Duty split by weight would give the enclosure 486 × 50% = €243 instead of €106.92, even though duty is charged on value and the enclosure is only 22% of the invoice.

How does landed cost change when the carrier’s invoice arrives after the sale?

Invoices for freight and duty can arrive late, when part of the power supplies has already been sold. Suppose 300 of 400 power supplies are sold and the document for €568.88 of costs on them (duty, broker and both freight lines) is recorded later. Before it, a power supply was valued at €10.80, after it at €12.22, a difference of about €1.42. On 300 sold units that is 568.88 × 300 / 400 = €426.66 by which the cost of goods sold in the earlier period was understated.

For such cases Bimp has cost price recalculation. A full repost of documents runs automatically after midnight, and to see the result at once you open the sales document and post it again. Details are in Cost price recalculation. The full cost is then written off by FIFO or by weighted average, depending on whether batch tracking is on.

How does the exchange rate affect the landed cost of a shipment?

All calculations start from the accounting rate. If the rate is 0.92 instead of 0.90, the invoice is 10,000 × 0.92 = €9,200, which is €200 more. Duty on a customs value of 9,200 + 720 = €9,920 rises to €496, which is €10 more. The landed cost of the shipment becomes 9,200 + 720 + 496 + 120 + 114 = €10,650 against €10,440, a difference of €210. A rate move of 0.02 (2.2%) adds 2.0% to the shipment. The accounting rate on the order deserves the same attention as the service amounts.

How do you record duty, broker and freight in Bimp?

Importing with customs clearance takes three documents in Bimp. First a supplier order where the supplier is customs or the broker, and based on it a supplier payment as an advance. No goods receipt is created for customs or the broker. Then comes the goods receipt from the foreign supplier. For purchases in dollars or other foreign currency the contract sets the currency, and Bimp converts the amount into the management accounting currency at the “Accounting rate”. Details are in Purchasing in a foreign currency.

Based on the goods receipt you create “Additional costs”. In the “Supplier” field you choose customs or the broker, in “Supplier order” the order with the advance, in “Service” “Customs duty” or “Delivery”, enter the service amount and choose one of the options in “Allocate”: “By amount”, “By quantity”, “By weight” or “By volume”. In the table the “Costs” column shows the share for each line. One document can be created for two or more receipts at once, and a customs advance can be closed in parts. The full sequence is in Import and customs declaration and Additional costs on a receipt.

The result appears in the “Goods receipt with additional costs” report, where the receipt price per unit and the cost price per unit sit side by side. If costs are recorded after the goods were sold, the cost price is updated by recalculation. It is handy to compare the report figures with the table above. How the costs flow into product cost is covered in the guide to manufacturing cost calculation, and more broadly on the Bimp home page.

What does Bimp do and what does it leave out?

Bimp is a Ukrainian cloud ERP for manufacturers. It allocates a cost amount between receipt lines by amount, quantity, weight or volume, creates a debt to customs, the broker or the carrier, and adds the share to the cost price of the goods. The document form has a single “Allocate” field, so duty, broker and freight with different bases, as in the example, are recorded with separate documents.

The system does not pick the duty rate, the customs value or the amount of import VAT. Take them from the declaration. How the VAT amount is entered in the “Additional costs” document and when it reaches the cost price depends on the accounting setting (“Cost price without VAT”), and your accountant confirms the treatment. Weight and volume must be filled in on product cards, otherwise the weight base will not work.

What did the shipment show?

A €9,000 invoice became €10,440 of landed cost, and the 16% uplift spread from 11.9% on relays to 27.8% on enclosures. Allocation by weight and by amount separated the money spent on metal from the money spent on electronics. On the switchgear cabinet the margin over components fell from 28.6% to 14.5% once duty, broker and both freight lines were added to the purchase lines.

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