The Power of Accurate Landed Costs in Business Central: How Precision Drives Profitability

What is landed cost in Business Central?
Landed cost represents the true cost of getting a product into your warehouse — including purchase price, freight, tariffs, duties, insurance, and handling fees. In Microsoft Dynamics 365 Business Central, you can record these costs using item charges to ensure your inventory and profit margins reflect reality, not rough guesses.

Why “Good Enough” Costs Aren’t Good Enough

Picture this: a distributor imports components from overseas and proudly reports 20% margins. But when freight costs spike and tariff fees roll in weeks later, the real margin drops to 8%. Sound familiar?

Incomplete costing isn’t just a small accounting error — it’s a silent profit leak. Whether you’re a manufacturer buying raw materials or a distributor importing finished goods, ignoring landed costs means you’re flying blind when it comes to true profitability.

Business Central helps you fix that. When set up correctly, it lets you capture every cost tied to purchasing, shipping, and receiving goods so your financial reports, pricing, and margin analysis reflect the truth.

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What Landed Cost Really Means

Landed cost is the total expense incurred to acquire a product and bring it to your facility. It goes far beyond the vendor’s invoice price.

Typical components include:

• Purchase price – the base cost from your supplier. Everyone usually has this one covered and is part of typical costing.
• Freight & transportation – from domestic trucking to international container shipments.
• Customs & duties – tariffs, brokerage, and import fees.
• Insurance – protection during transit.
• Handling & warehousing – internal or third-party costs for moving, storing, or preparing goods.

Without these additional layers, your inventory valuation and cost of goods sold (COGS) are incomplete. That means your gross margins, profitability reports, and financial statements are misleading — even if your books “balance.”

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Landed Costs in Business Central: Capturing True Costs with Item Charges

Item charges are the standard tool for recording all additional costs associated with a purchase — freight, duties, brokerage, insurance, etc.

You can assign these to:

• Purchase receipts or invoices
• Sales returns
• Transfers

…and allocate them by value, quantity, weight, or manually.

Once applied, the charge is posted into the item ledger entry and adjusts both inventory valuation and COGS automatically.
That’s the key to accurate landed cost tracking — no extra module required.

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Why Accurate Landed Costs Matter

Accurate landed cost tracking affects more than accounting—it drives profitability across the business.

1. Accurate Inventory Valuation

Your balance sheet relies on correct inventory values. If freight or duty isn’t captured, your assets are understated and your margins overstated. That distorts financial statements and taxes.

2. Trustworthy Margin Analysis

Sales reports only mean something if your costs are correct. Misstated landed costs lead to bad pricing decisions, poor product mix strategies, and “mystery margin erosion.”

3. Smarter Pricing Decisions

With accurate costs, you can price products based on real landed value, not purchase price. That’s critical when transportation or tariffs fluctuate.

4. Variance Management

Properly applied landed costs reduce the number of “adjustment” entries needed later. Your cost variance accounts become a diagnostic tool — not a dumping ground for errors.

Example: If freight rises by $2 per unit and you miss applying that cost, your gross margin on 10,000 units drops by $20,000. That’s the difference between profit and panic.

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Common Mistakes to Avoid

Even experienced users stumble with landed cost setup. Here are the biggest culprits:

• Forgetting to apply item charges.
• Allocating by quantity when value would be more accurate.
• Posting freight invoices directly to expense accounts instead of inventory.
• Ignoring landed costs in standard cost environments (still needed for variance reporting).
• Failing to reconcile estimated vs. actual charges at month-end.

Pro Tip: Create a simple checklist before period close:
All item charges applied
Freight accruals reconciled
Landed cost review completed
COGS validated

That one routine can prevent hours of detective work later.

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How Landed Costs Drive Profitability

Business Central’s landed cost features are more than accounting conveniences — they’re decision-making engines.

With accurate data, CFOs and operations managers can:

• Identify freight trends and supplier inefficiencies.
• Compare landed cost % of COGS over time.
• Forecast margins with confidence.
• See which customers or products absorb the most overhead.

Accurate landed costs connect financials, logistics, and operations. They turn gut feeling into informed strategy.

Or as one of my favorite clients once said, “For the first time, I can actually trust my margins — and my pricing meetings got a lot less awkward.”

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Best Practices for Managing Landed Cost in Business Central

If you want your landed costs to work for you (not against you), put these fundamentals in place:

1. Dedicated G/L accounts: Separate freight, duty, and brokerage accounts for clarity.
2. Workflow checks: Require purchasing or accounting review before posting.
3. Monthly reconciliation: Compare expected vs. actual freight and duty.
4. Training: Make sure buyers and accountants understand how landed cost affects profitability.
5. Reporting: Use Power BI or Cosmos dashboards to visualize landed cost trends and freight variances.

A simple Power BI chart showing “Landed Cost % of Total COGS by Month” can spark the kind of strategic discussion that transforms a business.

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Closing Thoughts: Precision Builds Profit

Profitability doesn’t vanish overnight — it leaks away through tiny inaccuracies and overlooked costs. Landed cost in Business Central gives you the visibility to stop those leaks before they erode margins.

The more precisely you capture every dollar spent on goods, the more confidently you can price, forecast, and grow.

If you’re using Business Central and haven’t explored landed cost functionality yet, now’s the time. Set it up. Test it. Measure the impact. You’ll never look at your margins the same way again.

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Explore more in our Inventory Costing Series.