How to Allocate Freight and Import Charges to Landed Cost by SKU

When one shipment contains several SKUs, do not spread every extra charge by units simply because the arithmetic is easy. Reconcile the complete shipment cost first, assign product-specific costs directly, then split each shared cost pool with a driver that reflects why that cost arose. Finish with a residual check: allocated costs must equal the source shipment costs, with no omissions or double counting.

That produces a landed unit cost that can be traced back to invoices and challenged when assumptions change. It does not decide the accounting treatment. Australian Accounting Standard AASB 102 describes costs that may form part of inventory cost, while your accountant should confirm how the standard, tax treatment and the business's accounting policy apply.

Start with a reconciled shipment total

Build the shipment cost record before touching a SKU formula. Use final supplier, forwarder, broker, carrier and government documents where available. If a cost is still estimated, identify the source, currency, rate, owner and expected finalisation date.

At minimum, record:

• supplier invoice lines and quantities received;
• exchange-rate treatment used by the business;
• international freight, insurance and origin charges within the buyer's scope;
• customs duty and other government charges where applicable;
• destination handling, broker and delivery charges within the chosen model;
• credits, rebates and invoice corrections; and
• the document reference and currency for every amount.

The order-level landed-cost model explains how to assemble the wider shipment view. This article starts after that cost base exists. If the forwarder invoice does not match the booked scope, complete the freight invoice audit before allocating it.

Separate direct costs from shared cost pools

For this management model, direct assignment preserves a clearer document trail than a shared allocation. If the source evidence links a cost to one SKU, keep that link instead of diluting the amount across the shipment. Examples might include a duty amount calculated for one declaration line, SKU-specific testing, or a delivery surcharge evidenced for one oversized item. The accountant still determines whether and how the cost enters inventory accounts.

Place the remaining costs into pools. Do not combine unlike costs merely to reduce spreadsheet rows.

Match each shared cost to a defensible driver

The driver should explain consumption or causation well enough for the decision being made. It should also be available from controlled records rather than reconstructed from memory.

Weight-driven charges

Use weight when the invoice or rate structure is weight-driven. For air freight, that may mean the billed chargeable weight rather than product net weight. For a road charge constrained by total payload, gross weight may be a useful candidate. Record whether the sheet uses unit weight, carton gross weight or allocated chargeable weight.

Do not use weight automatically for sea freight. A bulky, light SKU can consume most of a container while contributing little weight.

Volume-driven charges

Use cubic volume when space consumption drove the cost and reliable packed dimensions exist. Multiply packed cubic metres per selling unit by the quantity shipped, then reconcile the SKU total to the load plan or booking data. If pallets, voids or non-stackable cargo materially change utilisation, a simple carton-CBM allocation may need an exception.

Value-driven and declaration-level charges

Use value only where value is connected to the cost or is a deliberately selected management allocation for a fixed pool. Where customs duty evidence maps an amount to a tariff or declaration line, assign it directly to the related SKU or SKUs. If the declaration evidence does not support that mapping, obtain broker and accountant review before choosing an internal allocation. Insurance may use an insured-value basis if the actual policy or invoice does.

ABF publishes import processing and biosecurity cost-recovery charges at declaration level. Those schedules can change. Record the rate source and effective date, but do not treat a government charge as proof that customs value is the only acceptable internal allocation driver.

Use one allocation formula for every pool

For a shared cost pool, use the same sequence:

1. calculate each SKU's driver quantity;
2. sum the driver quantities across the shipment;
3. divide each SKU driver by the shipment driver total to get its allocation share;
4. multiply that share by the shared cost pool; and
5. confirm the SKU allocations add back to the pool.

In compact form:

SKU allocated cost = shared cost pool × (SKU driver quantity ÷ total driver quantity)

Do not round allocation shares too early. Round presented unit costs only after the extended SKU amounts reconcile. Preserve any immaterial rounding residual in a declared line rather than hiding it.

Worked example: three SKUs in one sea shipment

The following figures are fictional and demonstrate the method, not market rates or accounting advice. The shipment contains 1,000 units of SKU A, 500 of SKU B and 250 of SKU C.

The fictional AUD2,000 freight pool is allocated by packed CBM: SKU A uses 40%, B uses 20% and C uses 40%. The AUD400 fixed pool is allocated by invoice value: 40%, 30% and 30%. Duty remains direct by SKU. Extended landed cost equals invoice value plus direct duty plus allocated freight plus allocated fixed charges.

This example shows why unit allocation can mislead. SKU C has the fewest units but consumes as much cubic space as SKU A. Dividing freight by 1,750 units would transfer part of C's space cost to the other products.

Separate operational landed cost from inventory accounting

AASB 102 states that inventory cost includes costs of purchase, conversion and other costs incurred in bringing inventory to its present location and condition. Its costs-of-purchase guidance includes purchase price, import duties, non-recoverable taxes, transport, handling and other directly attributable acquisition costs, after relevant discounts and rebates.

The same standard also identifies examples that are generally excluded, including abnormal waste, certain storage, administration that does not contribute to bringing inventory to its location and condition, and selling costs. That boundary is more important than spreadsheet convenience.

Maintain two fields where the management view and financial-reporting view may differ:

• operational landed cost treatment; and
• financial reporting treatment, with the policy owner and review evidence.

Do not let the operational label decide capitalisation. AASB 102 excludes selling costs, administration that does not contribute to bringing inventory to its present location and condition, and storage unless it is necessary before a further production stage. It also notes that AASB 123 addresses limited circumstances for borrowing costs. Have the accountant classify financing, post-arrival storage, marketplace, abnormal-delay and administration items from the actual facts and accounting policy.

Handle estimates, final invoices and variances

Pre-arrival costing often uses estimates; final costing uses evidence. Keep both.

Record an estimate version with its quote, exchange-rate assumption and allocation driver. When final invoices arrive, replace the estimate in a new locked version and calculate the variance by cost pool and SKU. Do not overwrite the forecast as though it had always been correct.

Separate at least these causes:

• price or rate changed;
• shipment quantity or mix changed;
• physical driver changed;
• new charge appeared;
• currency conversion changed; or
• earlier data was wrong.

The foreign-exchange risk guide can help isolate currency exposure from operational cost changes.

Build controls around the spreadsheet

A landed-cost workbook should have visible controls, not just formulas:

• one shipment identifier and version;
• source-document reference for each pool;
• declared currency and conversion rule;
• named driver and unit of measure;
• preparer and reviewer;
• estimate or final status;
• pool-by-pool reconciliation;
• duplicate-invoice check;
• zero or missing driver exception; and
• locked final version linked to the inventory receipt.

If a driver total is zero, hold the allocation. If the allocated total differs from the source total, hold the posting. If a material invoice is missing, label the result estimated rather than final.

Turn the allocation into a decision input

The output is not merely a bookkeeping number. Compare landed unit cost with price, contribution margin, demand, cash and inventory constraints. A bulky low-value SKU may need different pack design, order frequency or mode planning. A high-value compact SKU may carry more duty or insurance but little freight.

Use the result as an input to the economic order quantity calculation, assortment review and supplier discussion. Keep the evidence trail attached. When a decision changes, the team should be able to tell whether the cost changed, the shipment mix changed or only the allocation assumption changed.

Sources

• Australian Accounting Standards Board — AASB 102 Inventories
• Australian Border Force — Import Processing Charges