IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT

FOR ERP IMPLEMENTATION

Landed Cost Management

Functional Design Document

Ibrahim Fibers Limited

A. F. FERGUSON & CO.

CHARTERED ACCOUNTANTS
A member firm of

January 2014

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

Contents
OVERVIEW .......................................................................................................................................................3
MASTER DATA.................................................................................................................................................4
COST FACTORS .........................................................................................................................................4
SHIPMENT SEQUENCE ............................................................................................................................4
PROCESS FLOWS...........................................................................................................................................2
COSTING...........................................................................................................................................................8
ACCOUNTING ENTRIES ...............................................................................................................................9

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

OVERVIEW

Oracle Landed Cost Management (LCM) manages the estimated and actual landed cost
of an item purchased from a foreign supplier. Landed cost consists of Item cost and
other shipment charges. LCM is used to estimate the landed costs of the imported
items and then update those costs with the actual landed costs when they arise.

LCM will be integrated with the following other Oracle Applications during the
processing of estimated and actual landed costs for an item;

 Oracle Purchasing
 Oracle Inventory
 Oracle Cost Management
 Oracle Payables

Inventory / Cost Landed Cost

Purchasing Payables
Management Management

Purchase
Shipment
Order

Receiving
Goods Estimated
Transaction
Receipt Charges
& Item Cost

Actual Supplier
Charges Invoice

All inventory orgs will be set as LCM enabled due to which user will not be able to enter
PO receipt as per the current process. Now, for all transactions, shipments will be
entered in LCM and then receipt will be entered for those shipments.

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

MASTER DATA

COST FACTORS
Following Cost Factors will be used in LCM:

 Amendment Charges
 Cargo Throughput Charges (CAA)
 Custom Duty
 Demurrage
 Excise & Taxation Expense
 Federal Excise Duty
 Inland Freight
 Insurance Expense
 L/C Opening Commission
 MEG Loading / Unloading
 MEG Measurement
 MEG Testing
 Misc. Clearing Charges
 Other Bank Charges
 Service Charges
 Wharf age Charges

Cost factors will be configured in such a way that amount will be entered for each
charge type per shipment. In case shipment contains multiple items, amount entered
for the cost factor will be allocated proportionately to the shipment lines on the basis
of the value of each shipment line.

SHIPMENT SEQUENCE
Pre-Numbered sequence will be used for shipments and it will starts from 1 to infinity.
L/C number will be entered manually in the DFF.

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

PROCESS FLOWS

Legend:
Process Landed Cost Management
No user entry Manual Process
Document Level 1
User Entry Link

Purchase/ Finance/Inventory/Payables Decision System Generated

Process Owner Department Document

Landed Cost Process

Purchase Department
Approve Blanket PO
Release
1

Purchase & Finance

Department

L/C Opening

Purchase Department

LC Opening Charges

Purchase Department
Shipment Schedule
finalized with supplier
4

Purchase Department
Create Shipment Header
when goods are shipped
by supplier
5

Continued

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

Landed Cost Process

Continued

Purchase Department
Shipment Received at
port
6

Quantity in
shipment line Quantity
will be Received =
No
altered as per Quantity
actual Ordered
quantity
Yes

Purchase Department

Create Shipment Lines

Accounts Department
Enter Estimated
Shipment Charges
6

Inventory Department
Shipment receipt at
Plant Site
(Process ‘Receipt’)
7

Inspection Inventory Department

Is there any
damaged/ sub- No Delivery into Inventory
Standard goods?
8

Yes

Inventory Department
Process ‘Return to
Supplier’ Continued
9

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

Landed Cost Process

Continued

Invoicing

Process Invoice

Costing

Accounts Department
Process Actual shipment
Accounts Department Charges in PKR
Process invoice for item 11
costs In foreign currency
10

Accounts Department

Final Close shipment line

12

Accounts Department

Run the Requests

13

Continued
Accounts Department
Payment to supplier by
Bank
14

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

1- Blanket PO Release
Blanket PO Release will be entered and sent for approved of designated approval
hierarchy. Shipments will only be entered once Blanket PO Release is approved.
(Refer to Sourcing FD for detail on Blanket PO Release and its approval)

2- L/C Opening
Purchase department will communicate with Finance department to open L.C. This
will be a manual process.

3- L/C Opening Charges

A Prepayment will be entered for the L/C opening charges by user from Payables
department, which will be matched with the very 1st shipment of that L/C

4- Finalizing shipment schedule

Buyer will finalize shipment schedule with the supplier. This will be a manual process.

5- Shipment by Supplier
When the goods are shipped by the supplier, buyer will enter the ‘shipment header’
in LCM. Single shipment as well as multiple shipments can be processed against
single PO line.

6- Shipment received at port

When the shipment is actually received at the port, buyer will enter ‘shipment
lines’.
There will be two possible scenarios:

a) Quantity received is equal to Blanket release quantity:

In this case shipment line will be entered with the quantity of Blanket Release.

b) Quantity received is not equal to quantity ordered:

In this case shipment line will be entered with the quantity actually received at the
port.

After entering the shipment lines, user from the accounts department will enter the
‘estimated shipment charges’. These charges will be entered per shipment line
and will be entered in terms of amount and not in terms of percentage.

7- Shipment received at Plant Site

When the shipment is received at plant site, Receipt will be entered in the system
with the shipment line quantity by the Inventory Department user.
(For detail on Receipt Refer to Para 3.5, 4.3 & 5.4 in FD-Purchase and Payables)
*Accounting Entry Point 1

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

8- Inspection and Delivery

Goods will be inspected before delivery into the inventory. Goods that pass inspection
process will be delivered to Inventory.
*Accounting Entry Point 2

9- Return to supplier
Goods that are damaged/ sub-standard will be returned to supplier. For this purpose
‘Return to supplier’ will be processed in the system by the Buyer. The original
shipment will automatically be reduced by the quantity of goods returned to supplier.
Those goods will be valued at their cost i.e. the item cost of the shipment will be
reduced proportionately with the amount of goods returned whereas other shipments
charges will be absorbed only by the goods that passed through inspection and
delivered to inventory.
Any cost incurred in returning those goods will be expensed out and will not become
part of actual item cost. The expense account will be debited in the distributions of
the AP invoice.

Replacement Goods
The replacement goods will be received against same PO. Replacement goods may
either be

 FOC Goods
In this case, a new shipment will be entered against the same PO with PO rate and
not with zero cost as the cost of returned goods had already been excluded from the
previous shipment. New shipment charges will be entered against the new shipment
and actual item cost will be built.

 Non- FOC Goods

In this case, a new shipment will be entered against the same PO with new item
cost (PO price + extra price) paid to the supplier against replacement goods. New
shipment charges will be entered against the new shipment and actual item cost will
be built.
*Accounting Entry Point 3

10- Invoice for Items cost

Invoice will be entered in the system against the items’ cost. The invoice will be
entered in foreign currency using the ‘User Exchange Rate’ as exchange rate type.
(For detail on Invoices Refer to Para 5.5 in FD-Purchase and Payables)
*Accounting Entry Point 4

11- Invoice for other Shipment charges

An invoice will be entered for each shipment charge with the relevant supplier
(payee) and matched with the PO receipt. For the purpose of matching, matching
type ‘Freight’ or ’Miscellaneous’ will be used. The supplier at the matching window
will be changed to PO supplier for the purpose of finding the PO/ receipt with which
the invoice of the charges is required to be matched. Cost factor type will be entered

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

with the amount of actual charges. This is basically the stage where actual shipment
charges will be entered. These charges will be entered in local currency i.e. PKR.
*Accounting Entry Point 5

12- Final Close Shipment Line

Once all the shipment charges have been entered, the shipment will be locked for
restricting application of further charges. For this purpose while matching last
shipment charge, it will be marked as “final match”, so that no further charges could
be built against that shipment. Personalization will be used to restrict such charges.

13- Run the requests

After processing the above-mentioned invoices, following requests will be run from
LCM:

 Matches Interface Import

 Submit Pending Shipments

These will update shipment in LCM with actual charges. Actual and estimated charges
against that shipment will then be shown in LCM module side by side. Pie chart and
line graph can be generated to analyze these charges.
*Accounting Entry Point 6

14- Payment
Refer to paragraph 3.5 & 5.7 in FD-Purchase and Payables

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

COSTING

Landed Cost Process

Continued

Accounts Department

Process item costing

Cost management

Periodic Costing Perpetual Costing

Perpetual

In case of perpetual costing, once both the requests mentioned in the paragraph 13
have been run successfully, actual cost worker will automatically run and update the
variance (difference between estimated charges and actual charges) for each
shipment. There will be no need to run cost update manually. The total variance
amount will be allocated to all on-hand quantity and the quantity issued before this
allocation will be issued at PO rate and once quantity is issued issue price will not
change.

Periodic Costing

With reference to current practice for periodic orgs, once the cost processors have
run successfully, system accumulates opening balance of the item and the cost-
owned transactions for the period (Item costs + actual other shipment charges) and
then make a single weighted average rate which will be applied to all the issuances
for the period.

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

ACCOUNTING ENTRIES

Sr. Activity Accounting Entry

1 Shipment Receipt at Plant Site
2 Inspection and Delivery
3 Return to Supplier
Debit Receiving Inspection A/C
(Estimated Landed Cost)
Credit AP Accrual A/C
(PO Price+ Non-Recoverable
tax)
Credit Landed Cost Absorption
(Estimated Landed cost less
PO Price+ Non-Recoverable tax)
Debit Material Valuation A/C
(Estimated Landed Cost)
Credit Receiving Inspection A/C
(Estimated Landed Cost)
Return transaction after invoice is accounted
and actual landed cost is calculated

Return to Receiving

Debit Receiving Inspection A/C

(Actual Landed Cost)
Credit Material Valuation A/C
(Actual Landed Cost)

Return to Supplier

Debit AP Accrual A/C

(PO Price +Non-Recoverable Tax)
Debit Landed Cost Absorption
[Actual Landed Cost – (PO Price +
Non-Recoverable Tax)]
Credit Receiving Inspection A/C
(Actual Landed Cost)
4 Invoice for Item cost Debit AP Accrual A/C
(PO Price)
Debit Tax A/C
(Tax Rate)
Debit Invoice Price Variance A/C
(Difference between PO Price &
Invoice Price)
Debit Exchange Rate Variance
(Difference between receipt
exchange rate and Invoice
exchange rate)
Credit Liability A/C
(Invoice Price including Tax)
5 Invoice for other Shipment Debit Default Charge A/C
charges (Invoice Price)
Credit Liability A/C

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS
 IBRAHIM FIBERS LIMITED FDD –LANDED COST MANAGEMENT
FOR ERP IMPLEMENTATION

(Invoice Price)
6 Run the requests Once both the requests (mentioned in
paragraph 13) have been run following
accounting entries will generate automatically.

Landed cost Adjustment – for Receiving

Debit Receiving Inspection A/C

(Difference between actual
Landed Cost and estimated
Landed Cost)
Credit Landed Cost Absorption
(Difference between actual
Landed Cost and estimated
Landed Cost)

Landed cost Adjustment – for Delivery

Debit Landed Cost Absorption

(Difference between actual
Landed Cost and estimated
Landed Cost)
Credit Receiving Inspection A/C
(Difference between actual
Landed Cost and estimated
Landed Cost)

Average Cost Update

Debit Material Valuation A/C

(Difference between actual
Landed Cost and estimated
Landed Cost)
Credit Landed Cost Absorption
(Difference between actual
Landed Cost and estimated
Landed Cost)

A. F. FERGUSON & CO. a member firm of

CHARTERED ACCOUNTANTS