Track cost of goods sold and landed cost

Direct answer

COGS is the inventory cost assigned to goods sold during the period. Landed cost adds eligible costs of getting purchased goods to their present location and condition, such as inbound freight and import duty. Allocate those costs to items, apply the business’s inventory cost method, and reconcile inventory movement before calculating product margin.

Why this question comes up

Supplier prices, inbound charges, exchange rates, and inventory adjustments can change SKU cost from one receipt to the next. Supplier price alone may therefore understate the cost of a sold item.

Records to gather

• Supplier invoices with unit costs and currency
• Inbound freight, duty, nonrecoverable taxes, and customs documentation per shipment
• Directly attributable receiving and handling costs, distinguished from storage and outbound shipping
• Inventory counts at period start and end, with valuation method stated
• Returns, damage, shrinkage, and write-off records

Review workflow

1. Identify eligible purchase costs. Include supplier price and directly attributable inbound charges under the applicable accounting policy. Keep outbound shipping and ordinary storage separate unless specific rules require otherwise.
2. Allocate shared costs. For a shipment with several SKUs, choose a supportable basis such as weight, volume, or value for each type of charge. Record the basis and use it consistently.
3. State the cost method. Use the method in the accounting records, such as FIFO or weighted average; do not switch methods to improve a margin comparison. LIFO availability depends on the reporting framework.
4. Reconcile inventory. Opening inventory plus purchases and other additions, less ending inventory and separately recorded adjustments, should explain COGS. Investigate counts, returns, transfers, and write-offs before forcing a tie.
5. Check foreign-currency treatment. Identify the transaction date and rate used when inventory was initially recorded. A later exchange movement on an unpaid supplier balance is not automatically a change to historical inventory cost.

What a useful answer should include

• Landed cost per unit with each component broken out
• The allocation method for shipment-level costs, stated and applied consistently
• Inventory valuation method named, with confirmation it did not change
• An inventory rollforward that separates COGS from write-offs and other adjustments
• Gross margin by SKU on landed cost, not supplier price
• Shrinkage, damage, and write-offs shown separately from cost of sale

Common failure modes

• Using supplier price alone. Missing eligible inbound costs can make product margin look too high.
• Allocating every charge by unit count. A weight-based freight bill or value-based duty may need a different allocation basis.
• Switching cost methods mid-comparison. A change in method can move COGS without any change in units sold.
• Plugging the rollforward. A forced balance can hide a count error, return, transfer, or write-off.

Community context

The linked discussion reflects a small-business inventory-cost question, not accounting authority. Check the business’s policy and the rules for its reporting framework before changing product costs.