How do I absorb freight charges into the inventory cost of my items (Landed Costs)?
By default, freight on purchase orders is posted to PO Shipping Cost as a cost-of-sales G/L transaction at the time of the PO Invoice. This does not increase the inventory value of the purchased items.
This article shows three supported approaches to reflect freight (“landed costs”) in product costs:
Treat freight as manufacturing overhead (spread across all manufactured items)
Bake freight into the item’s purchase unit cost
Manually adjust inventory cost after receipt (workaround for significant one-off freight)
Option 1 — Treat Freight as Manufacturing Overhead
Many companies handle inbound freight as part of Manufacturing Overhead and capture it in the Shop Rate. This spreads freight across manufactured items via routings rather than increasing the inventory cost of purchased items.
Option 2 — Incorporate Freight into Purchase Unit Cost
If you consistently incur freight or a tariff for a SKU, set the item’s purchase unit cost to include both material and expected landed costs. This will pose a challenge in PO Invoice matching process. You would need to manually adjust the supplier price to include the material and landed costs in the unit cost of the item. If you include landed costs in the unit cost, you would not have a separate line item charge for freight.
Option 3 — Workaround: Change Inventory Cost After Receipt
Use this when a significant freight charge applies to items already received and you need it reflected in inventory value.
After you receipt your raw material, you can change the inventory cost of this item to reflect the averaged cost of the item after adding in the freight charges. To do this, go to the Inventory > Change Inventory Cost menu. You will need to calculate a new averaged inventory cost by dividing the total shipping charge by the current quantity on hand for the item. The result of this calculation indicates the amount by which you should increase your inventory cost.
For example, if you have a $1000 freight cost, and you have 2000 units on hand, you would take 1000 / 2000 which indicates an increase in your average inventory cost of $.50 and you would use the Change Inventory Cost feature to increase the inventory cost of the item by that amount. So if the inventory cost of the item in this example was $10.00, you would then enter $10.50 as the new inventory cost.