When you import or purchase products, the price you pay your supplier rarely tells the full story of what each item truly costs your business. Shipping, customs, freight, insurance, and other costs all add to the total landed value - and unless you account for those correctly, your margins and inventory reports will never be fully accurate.
Ratals ERP automatically calculates and posts landed cost for each purchase order, ensuring that every inventory item reflects its real cost once it's received and posted into the system. In this post, we'll look at what landed cost means, how Ratals allocates it across products, and how those values feed directly into accurate financial reporting and Cost of Goods Sold (COGS) tracking.
In this tutorial, I'll cover:
Landed costs represent the total expense of bringing goods into your business - not just the supplier's invoice. They include everything from product purchase price to logistics, customs clearance, taxes, and local delivery. Essentially, landed cost captures all the costs it takes to have inventory ready for sale or use in production.
By combining these, Ratals ERP determines the true cost of your inventory - the amount that should appear in your balance sheet and be used when calculating COGS.
Ratals ERP takes a structured and transparent approach to landed cost calculation. Each purchase order (PO) you receive goes through a two-stage process:
inventory_assets - ensuring every layer of cost is captured for accounting, reporting, and COGS tracking.Each additional fee - shipping, duty, insurance, etc. - is distributed across products based on the selected landed cost method. Ratals supports multiple allocation methods to handle any real-world scenario:
This ensures high-value or heavier items receive a fair, proportionate share of landed expenses - not an arbitrary flat rate.
You can change the Landed Cost Method at any time in the admin area to suit your business needs.
Path: Admin > Accounting > Settings > All Settings
Example Screenshot:
Note: Changing the "Landed Cost Method" will not affect inventory already posted. Only purchase orders posted after this change will use the newly selected Landed Cost Method.
When a purchase order is posted in Ratals ERP, every item received is recorded in the inventory_assets table with full detail - including quantity, vendor, method, and the calculated per-unit landed cost.
This table is the foundation of Ratals' inventory valuation system. Each row represents a distinct layer of inventory, reflecting exactly what it cost your business to acquire those goods.
After allocation, Ratals calculates the total and per-unit landed cost for each item using this simple but powerful formula:
Unit Landed Cost = (Product Cost + All Allocated Fees) / Quantity
That value becomes the unit_landed_cost stored in inventory_assets. It's this cost that flows through to COGS when a sale occurs, ensuring your profitability metrics are based on real-world costs - not estimates.
Ratals ERP doesn't just calculate landed cost - it automatically records it into your accounting system for full traceability. When you post a purchase order, the system creates a complete set of journal entries covering both product cost and all associated fees.
| Chart of Accounts | Debit | Credit |
|---|---|---|
| Inventory - Product Cost | $10,000.00 | |
| Inventory - Shipping Allocation | $1,000.00 | |
| Inventory - Customs Clearance Allocation | $500.00 | |
| Inventory Not Yet Paid or Received (Estimated) | $11,500.00 |
Each allocation type - shipping, duty, insurance, etc. - posts to its own account class (e.g. Inventory - Duty Allocation). This separation keeps your financial reporting clean and helps identify exactly how much each category contributes to total inventory value.
When inventory from a purchase order is posted, Ratals performs a precise sequence of updates:
inventory_assets.setNewLandedCost() function to update the inventory item's latest landed cost. This allows you to see the most recent landed cost without digging through individual inventory asset layers.This automated workflow prevents manual entry errors and ensures your financial and inventory data remain in sync.
To get the most accurate results from Ratals ERP, make sure your inventory posting process is consistent and up to date. Always confirm that each new purchase or received batch is correctly recorded in inventory_assets with its true cost, which is determined using the landed cost method.
Accurate landed cost directly affects your profit margins, pricing strategy, and inventory valuation. If costs like freight or customs are left out, your inventory will appear cheaper than it really is - making your profits look artificially high.
By tracking landed cost precisely, Ratals ERP gives you the confidence that every sale reflects the true cost of the goods sold. It helps ensure your financial statements remain reliable and that your pricing decisions are based on reality, not guesswork.
Together, these two systems - Landed Cost and COGS - ensure that your business always knows the real cost behind every sale.
Landed Cost represents the total cost of acquiring a product, including the supplier price, shipping, customs, freight, insurance, taxes, and any other fees. Ratals ERP calculates and applies these costs to ensure inventory and COGS are accurate.
Ratals calculates landed cost in two stages: first, by estimating and reviewing the total costs before posting, and second, by posting the purchase order, creating journal entries, and inserting detailed inventory asset records with per-unit landed costs based on the selected landed cost method.
Ratals supports multiple allocation methods for distributing additional costs: by cost (proportional to item value), by unit (evenly across all units), by weight, or by volume. This ensures the landed cost is accurately assigned to each product.
Yes, you can change the Landed Cost Method in the admin settings, but it only affects purchase orders posted after the change. Already posted inventory retains the original allocated landed costs.
You can update it in the admin area: Admin > Accounting > Settings > All Settings.
Landed cost feeds directly into COGS calculations. When inventory is sold, Ratals uses the per-unit landed cost from inventory_assets to determine the actual cost of goods sold, ensuring accurate gross profit reporting.
Tracking landed cost accurately ensures that your profit margins, pricing decisions, and inventory valuation reflect the true cost of goods. Missing fees like shipping or customs can make profits look higher than they actually are and distort financial reports.
When posting a purchase order, Ratals automatically generates journal entries for each component of landed cost (product, shipping, duty, insurance, etc.), keeping your accounting records in sync with actual inventory costs.