Total cost of a product including purchase price, freight, customs, insurance, and all other charges
Landed cost is the total cost of acquiring a product, calculated by adding the purchase price to all additional expenses incurred to bring the goods to your warehouse or place of business. These additional costs include freight and transportation charges, insurance, customs duty (for imported goods), loading and unloading charges, octroi or entry tax (where applicable), and any other handling fees. For Indian businesses, understanding landed cost is essential for accurate stock valuation, correct pricing, and true profit calculation. If you set your selling price based only on the purchase price without factoring in landed costs, your actual profit margin will be lower than expected. This is especially important for businesses importing goods, where customs duty, IGST, clearing agent fees, and port charges can significantly increase the cost. Even for domestic purchases, freight charges, GST on transport, and loading/unloading costs must be considered. Indian accounting standards and GST regulations require that inventory be valued at the cost of acquisition, which includes all costs incurred to bring the stock to its present location and condition.
A hardware store owner in Chennai orders 500 kg of copper wire from a manufacturer in Mumbai. Purchase price = Rs. 3,50,000. Freight charges = Rs. 12,000. Insurance = Rs. 3,500. Loading and unloading = Rs. 2,500. GST on freight = Rs. 2,160. Total Landed Cost = Rs. 3,50,000 + Rs. 12,000 + Rs. 3,500 + Rs. 2,500 + Rs. 2,160 = Rs. 3,70,160. Landed cost per kg = Rs. 3,70,160 / 500 = Rs. 740.32. He must price above Rs. 740.32 per kg (not Rs. 700) to make a true profit.
Landed Cost = Purchase Price + Freight + Insurance + Customs Duty + Other ChargesExample: If you purchase goods worth ₹5,00,000 and incur ₹15,000 in freight, ₹5,000 in insurance, ₹25,000 in customs duty, and ₹5,000 in handling charges, then Landed Cost = ₹5,00,000 + ₹15,000 + ₹5,000 + ₹25,000 + ₹5,000 = ₹5,50,000.
If you price products based only on the purchase price, you are ignoring freight, insurance, and other costs that reduce your actual margin. For example, if you buy goods at Rs. 100 and sell at Rs. 120, you may think your margin is 20%. But if the landed cost is Rs. 112 after adding freight and handling, your real margin is only about 7%.
GST on the purchase itself is usually claimed as input tax credit (ITC) and is not added to landed cost. However, GST paid on freight, insurance, and other services adds to the landed cost if the ITC on those services is not claimed. For imported goods, IGST and customs duty directly increase the landed cost.
Purchase price is the amount on the supplier invoice for the goods alone. Landed cost includes the purchase price plus all additional expenses — freight, insurance, customs, handling — needed to get the goods to your warehouse. The landed cost is always equal to or higher than the purchase price.
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