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What can be included in Landed Cost of Inventory

The situation: a company distributes a product. It either drop ships it from its suppliers to its customers, or it stores it in rented storage (esp. seasonally) until customer orders product. There is no value added process to the product- it is simply purchased and sold. A senior non financial company executive wants the storage facility rental costs to be added to the landed cost of the product in storage such that the longer the product remains in storage, the higher the landed cost becomes. The company's inventory is collaterized for bank loans. Assume the storage rental costs are material both to the P/L and the Inventory value. Would you as the CFO of that company accede to the executive's demands? Why? OR Why not? This is not fiction!

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

No. The storage facility is an OpEx cost since it is after the fact of recieving the inventory.

If, it was a customs hold storage charge, that would be part of landed costs.

He is also, by taking this tack commiting what might be perceived as fraud against the bank.

Topic Expert
Brenda Goudey
Title: CFO/VP of Finance
Company: KDR Designer Showrooms
(CFO/VP of Finance, KDR Designer Showrooms) |

No, I would not do it. This tactic would falsify the collateral statements, thereby committing fraud against the bank.

The product is not becoming more valuable as it sits in the warehouse. In fact, as we all know, many products become less valuable the longer they sit.

I do have to give him points for creativity though - seeking to be rewarded for bad inventory management.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Thanks folks! I appreciate your confirmation of my views on this!

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