Landed Cost of Imported Raw Materials: Film from Turkey Invoiced at €37,800 Costs €42,500

The company is fictional. Every action in Bimp is a real product feature.

Landed cost of imported raw materials is the supplier’s price plus every expense that arrives on separate invoices: freight, duty and the broker. A notional batch of film from Turkey costs €37,800 at the supplier’s price, and its full cost is €42,500. The difference of €4,700 (12.4%) became visible to a fictional packaging maker only when it tied all the invoices to one batch.

A sales manager quoted a customer a price for bags after counting the film from the invoice. Two weeks later the broker’s invoice arrived, a week after that the duty, and freight was billed in the middle of the month. The price was already in the contract.

Why is the landed cost of imported raw materials higher than the supplier’s price?

Wrapline (a fictional company) has 80 people and makes flexible packaging: bags and rolls for food producers. It buys film in Turkey for dollars and books in euros. Customers pay in euros.

A batch of 20 tonnes at $2,100 a tonne is invoiced at $42,000. At a notional booking rate of 0.90 EUR per USD that is 42,000 × 0.90 = €37,800, or €1,890 a tonne. This is the only sum a costing “by the supplier’s invoice” takes into account. Duty, broker and freight come after shipment, on separate invoices, and are not tied to a specific batch. On top of that, the rate at the moment of payment differs from the rate in the contract.

How do you record the purchase of imported film in a foreign currency in Bimp?

Currency first. A purchase in a foreign currency is made with a contract in that currency: in the supplier contract card, change the “Currency” field to USD (Foreign currency purchase, Supplier contract). After that the prices and the total of the supplier order are shown in dollars: 20 t × 2,100 = $42,000. The debt to the supplier is kept in a currency balance (Supplier order).

The booking rate in the document header decides at which rate the warehouse values goods in euros. If it differs from the real rate on the date of the operation, the cost at receipt will be wrong, so check the rate.

Next comes the receipt of the film from the foreign supplier, as a separate document (Goods receipt). The warehouse sees 20 t for €37,800.

How do you add duty, broker and freight to the cost?

An advance to customs or a broker is made with a separate supplier order and a payment based on it. You do not need to create a receipt for that order: the advance is closed by the “Additional costs” document (Import and customs).

Three “Additional costs” documents are created based on the film receipt, one for each provider: the carrier, customs and the broker. Each one names the service provider, the service, the amount and the allocation method: by amount, quantity, weight or volume (Additional costs). The receipt has one line, so the allocation method does not change the result here. For batches with several lines, it is convenient to split duty by amount and freight by weight.

The notional amounts are as follows:

Each document raises the cost of the film in the warehouse and creates a debt to the provider, which is closed by a payment based on that document. This article does not cover duty rates for a specific product code: the amounts are notional.

How much does a tonne of film cost with all the expenses?

The “Goods receipt with additional costs” report puts the receipt and the additional costs into one table (Report). For our batch it shows:

The arithmetic: 37,800 + 4,700 = 42,500; 42,500 / 20 = 2,125. The difference from the supplier’s price is 2,125 - 1,890 = €235 a tonne, or 235 / 1,890 = 12.4%. Checking from the expenses: 4,700 / 20 = €235 a tonne, the same result.

What changes in the price of bags?

The owner sees this on one product. Suppose 1,000 bags take 25 kg of film. At the supplier’s price that is 25 × 1.89 = €47.25, at the full cost 25 × 2.125 = €53.13.

Selling prices of bags in the company are tied to the dollar. The price list uses the prices by exchange rate mode: a supplier price of $70 per 1,000 bags at a rate of 0.90 gives €63.00. A change of the rate in the price list card and the “Calculate prices” button update all euro prices at once (Prices by exchange rate).

The margin on the film differs depending on which cost you take. At the supplier’s price: 63.00 - 47.25 = €15.75, or 25.0% of the price. At the full cost: 63.00 - 53.13 = €9.87, or 15.7%. The gap of 9.3 percentage points was invisible to the company before, because costing did not contain duty, broker and freight. Now it calculates the price of bags from €2,125 a tonne and no longer uses €1,890.

How does a change in the rate move the cost of the next batch?

Suppose the next batch arrives at 0.92 EUR per USD. The goods cost 42,000 × 0.92 = €38,640, the euro expenses stay at €4,700, and the total is €43,340. A tonne comes to 43,340 / 20 = €2,167, which is €42 more than the previous one (each cent of the rate adds 42,000 × 0.01 = €420 to the batch, and 420 / 20 = €21 to a tonne).

The price list in dollars is updated as well: 70 × 0.92 = €64.40 per 1,000 bags. The film for these bags costs 25 × 2.167 = €54.18, and the margin on the film is 64.40 - 54.18 = €10.22, or 15.9%. It almost matches the last one (15.7%), because the price and the cost move together. The full cost shows that the bag price has to rise together with the rate.

What if the broker’s invoice arrives after the film has been partly used?

Suppose that by the time of the broker’s invoice 8 tonnes of film have already gone into production. Before the broker’s €400 was recorded, the cost of a tonne was (37,800 + 2,400 + 1,900) / 20 = €2,105. After it is recorded, it is €2,125, which is €20 higher, and the understatement on the 8 tonnes already used is 8 × 20 = €160.

The “Additional costs” document is created for the same receipt and the documents are reposted from the receipt date. Bimp rewrites the warehouse movements, and the cost in the following documents is updated. A mass recalculation also runs automatically after midnight (Cost recalculation). After that the “Goods receipt with additional costs” report shows the full €4,700.

What does this give the company?

The owner of the production sees why a “profitable” purchase costs more, and sees it before the first sale. The bag price is calculated from €2,125 a tonne.

The buyer gets one report instead of three folders of invoices. Each provider (carrier, customs, broker) has its own document and its own debt, so invoices do not get lost and payment goes through separately. When the rate changes, the economist updates the euro prices for every price list item at once.

The allocation of duty, freight and the broker across imported materials is covered in more detail in Landed Cost of Imported Components: Duty, Broker and Freight in Unit Cost. The Bimp features for packaging are covered on the Software for packaging manufacturers page.

Scenario limits

The scenario shows one batch with one product and three expenses in euros. How import VAT enters the cost depends on the company’s accounting settings and is not covered here. Duty rates for a specific product code are not given in the article, and the duty amount is notional, like the rate of 0.90 EUR per USD. Exchange differences between the contract and the payment are not calculated in this scenario. Some of the help articles behind the steps carry a verification status, so check the button names against your version. Bimp is a cloud ERP for manufacturers, built in Ukraine.

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