Distributing Import Expenses to the Final Cost of the Product
Distributing import expenses is crucial, especially if your business relies on importing goods from abroad. The cost of imported products increases due to additional expenses related to importation beyond the actual product cost. To avoid bearing these costs individually, it is essential to distribute these expenses to the final cost of the product.
For example, if you operate in the automotive industry, own a showroom in Riyadh, and recently closed a deal with Mercedes to purchase 20 cars of C180, 20 cars of C200, and 20 cars of C300, you will incur additional expenses apart from the deal cost, such as:
- Shipping cars from the Mercedes factory in Germany to the seaport.
- Renting space on the departing port dock.
- Sea freight and insurance expenses.
- Renting space on the arrival port dock.
- Customs and storage.
- Transporting cars from the port to your warehouses.
All these expenses need to be considered; otherwise, the deal may be deemed unprofitable. Now, let us provide you with a detailed explanation and illustrative examples of how to distribute import expenses on the final product cost using Daftra.
The process of distributing expenses in Daftra involves three steps:
- Enable requisition for purchase invoices.
- Create purchase invoice.
- Distribute import expenses.
Step 1: Enable Requisition for Purchase Invoices
The first step to distribute expenses to the final product cost is to enable requisitions for purchases.
Go to “Inventory” from the main menu, then choose “Inventory Settings,” and click on the “General” tab. This step is crucial to allow the addition of expenses to the requisition before confirming its delivery.
Inside the general inventory settings screen, we will activate the option “Enable Requisition for Purchase Invoices,” and then click the “Save” button.
Step 2: Create a Purchase Invoice
Now we are creating a purchase invoice for the imported goods that we will distribute the import expenses on its final cost.
First, go to “Purchases” from the main menu, then choose “Purchase Invoices.” Click on the “New Purchase Invoice” button and fill in the required information. You can refer to the guide “How to create a new purchase invoice in Daftra“.
Step 3: Distribute import expenses
To distribute expenses, you must first select the requisition on which the expenses will be distributed. Go to “Inventory” from the main menu, then click on “Manage Requisitions“, then select the requisitions, and then click on the “Distribute Expenses” button.
You will be presented with an “Expense Distribution Information” panel to enter details of the items: Type, Expense, Amount, and Distribution Type. This panel also displays details of the products: each item’s name, quantity, unit price, and the total price for each product individually. Once you add the expense details, including its cost and distribution type, the expenses will be directly added to the total price of the requisition.
First: Determine whether the distributed expense is an expense or a journal entry.
If choosing “Expense“: You can select an existing expense if you have added an expense before, or add a new expense.
If choosing “Entry“: You can select an existing entry if you have added an entry before, or add a new daily entry.
Amount: Specify the cost of this expense.
Distribution Type: There are three types of expense distribution on the cost of the final product (Manual, Amount, Quantity). What is the difference between each type?
Manual
This option allows you to manually add what has been spent on each item individually, provided that the total amount of expenses ultimately equals the sum of what you have manually added to the items.
Amount
The total amount of expenses will be automatically distributed among the products based on the monetary value of each product. For example, if the invoice includes three products with costs of the first (100,000), the second (60,000), and the third (150,000), and the total amount of expenses is 1,000, then (322.581) will be allocated to the first product, (193.548) to the second product, and (483.817) to the third product, totaling (1,000) as the overall cost of import expenses.
Quantity
The total amount of expenses will be automatically distributed among the products based on the quantity of each product. For example, if the invoice includes three products with the quantity of the first product (50 pieces), the second product (20 pieces), and the third product (30 pieces), and the total amount of import expenses is (1000), then (500) will be allocated to the first product, (200) to the second product, and (300) to the third product, totaling (1000) as the overall cost of import expenses.
By following one of the three distribution methods, you have successfully distributed the import expenses to the final product cost. The total price will be displayed after adding the total item price to the total cost of expenses.
Press “Save” at the top right of the page to confirm the requisition after adding the import expenses to it. To confirm the addition of expenses to the unit price for each product, you can click on one of the products listed in the requisition to find that the average cost price for this product has been updated after adding the expenses to it.