Import & LC
Import costing from LC opening to cost per unit: a worked example
Follow an imported consignment from LC opening to final cost per unit: what to include, how to allocate freight and duty, and when to finalise the cost.
You open an LC in July, the goods arrive in September, customs clears them in October, and in November a customer asks for your best price. What did those goods actually cost per unit? If the answer is the supplier's invoice price times the exchange rate, you are underpricing every import you sell.
This worked example follows one consignment from LC opening to a final cost per unit. The figures are made up to show the method; the duty, tax and fee amounts in your own case come from your own customs and bank documents, not from this article.
The cost stages
Think of landed cost as five layers, each added as the documents arrive. Keeping them separate lets you see where cost builds up and lets you compare shipments.
- 1Goods value: supplier invoice in foreign currency, converted to taka at the rate applicable to your bank settlement
- 2Financing and LC costs: LC margin impact, commission, SWIFT and amendment charges, interest on any import loan or usance period
- 3International charges: freight and insurance, where not already in the invoice terms
- 4Customs and border taxes: customs duty and any other duties, with non-recoverable amounts added to cost and recoverable VAT kept out of cost
- 5Local costs: C&F agent fees, port and shed charges, unloading, transport to your warehouse, and any storage or demurrage
A worked example
Assume you import 10,000 units of a product. The invoice is USD 20,000 and the bank settles at a rate of Tk 120 per dollar. Costs below are illustrative.
| Component | Amount (Tk) | Note |
|---|---|---|
| Goods value (USD 20,000 at Tk 120) | 2,400,000 | Use the actual settlement rate |
| LC commission, SWIFT and charges | 30,000 | From bank advice |
| Freight and insurance | 120,000 | From shipping documents |
| Customs duty and other non-recoverable taxes | 600,000 | From the bill of entry, not recoverable VAT |
| C&F, port and handling | 70,000 | From C&F bill |
| Transport to warehouse | 30,000 | Local carrier invoice |
| Total landed cost | 3,250,000 | |
| Cost per unit (10,000 units) | 325 | 3,250,000 divided by 10,000 |
The goods value alone was Tk 240 per unit. The real cost is Tk 325 per unit, 35% more than the number many people carry in their heads. If you priced at a 20% margin over Tk 240, you are selling below cost.
What goes in and what stays out
- In: costs necessary to bring the goods to their present location and condition
- In: non-recoverable import taxes and duties
- Out: recoverable input VAT, which is an asset claimed against output VAT
- Out: general overheads like head office salaries and rent, which are not specific to the consignment
- Out: abnormal losses, such as cargo damaged through carelessness, which are expensed as incurred
Allocating cost across multiple items
Most shipments contain more than one product. Costs that relate to the whole shipment, such as freight, C&F fees and transport, must be shared across lines. Choose a basis that reflects how the cost arose and apply it consistently.
| Allocation basis | Works well for | Weakness |
|---|---|---|
| Value | Goods of similar density with duty charged on value | Over-loads freight onto expensive, compact items |
| Weight | Bulk goods, raw materials | Ignores value-based duties and insurance |
| Volume (CBM) | Bulky, light goods where freight is volume-based | Needs reliable measurements |
| Quantity | Uniform items | Distorts cost for mixed products |
Duty is usually calculated per line on the bill of entry, so apply it directly to the line it belongs to rather than spreading it. Only shared costs need an allocation basis.
Provisional and final cost
You often need a cost before every invoice has arrived. The C&F bill may come weeks after the goods are in the warehouse. Two sensible approaches: use a provisional cost based on estimates and revise when the final invoices arrive, or hold goods in a clearing account and move to stock only when costs are complete. Whichever you use, the revision must flow through to stock value and, for goods already sold, to cost of sales. Teams that revise only the stock record and not the cost of goods sold end up with profit that is a little too good, every time.
Exchange rate: which one?
The rate you use to convert the supplier invoice should be the rate at which the liability was actually settled, or the policy rate at recognition with the difference taken to exchange gain or loss at settlement. What matters is that you choose a policy and follow it, and that gains and losses between recognition and payment are visible in their own account instead of being smuggled into inventory cost without anyone noticing.
Why LC tracking helps
A single LC can generate a dozen cost documents over several weeks. If each one is posted to a separate expense account, assembling the total for one shipment means searching. When every charge is tagged to the LC or shipment number as it is posted, the landed cost schedule builds itself and you can compare consignments: this shipment cost 31% over goods value, last quarter's cost 22%. That comparison is how you spot the freight rate that crept up or the port charges nobody questioned.
Finalise each consignment: compare the sum of documents to the schedule, close the LC file, and note the final cost per unit on the item record. Then quote the next order from that number.