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This blog post is part of a series of related blog posts highlighting the enhancements to address the handling of landed costs.

Link to main blog post.


The objective of this blog post is to explain the settings and prerequisites which are needed to use the landed costs functionality.

Note: Before using landed costs in any transaction, please note that all the following steps MUST be completed.


1    Settings in Business Configuration

1.1 Activation of the functionality in solution scope

To activate the new capabilities, please go to step 4 Questions in the solution scope and set the flag as shown in the following screenshot:

With the activation of the functionality, the following Landed Cost Categories are automatically available in system:

  • Freight

  • Insurance

  • Customs Duty

  • Handling Charges

  • Service Charges

  • Landed Cost – Others (Capitalized)

  • Landed Cost – Others (Expenses)

These Landed Cost Categories serve the following purposes:

  • For each single landed cost category, it will be decided if the landed costs will be capitalized or treated as expenses (described in detail in point 1.2 below)

  • In certain areas in account determination, dedicated G/L accounts per landed cost category need to be assigned (described in detail in point 1.3 below)

  • You can use landed cost categories in certain reports as selection criteria and as an attribute to analyze and track the landed costs

Note: The description of the landed cost categories cannot be changed. Also, neither the creation of custom categories, nor the removal of pre-delivered categories, is possible.

1.2  Maintain posting control profile for procurement process

In the finetuning activity Posting Control Profiles for Procurement Processes under Procure to Stock, a new area Landed Cost Category is available. Here you define for each procurement profile and landed cost category whether the landed costs should be capitalized or expensed. When the flag Capitalized is set for a landed cost category, the landed costs are charged to respective inventory balance sheet accounts. If not, these costs will be posted on an expense account, assigned to the respective product category.

By default, only the landed cost category 7 Landed Cost–Others (Expenses) is not flagged as capitalized, which means it will be handled as expensed. All other categories are set to ‘to be capitalized’.

Note: Once a landed cost category has been applied in any transaction, you should not change this setting anymore because of the different posting logic! Only in the case of legal changes, and subject to certain conditions, might this be possible.

1.3  Maintain Charts of Accounts, Financial Reporting Structures, Account Determination

For the following settings, please go to the finetuning activity Charts of Account, Financial Reporting Structures, Account Determination.

1.3.1 Edit Chart of Accounts

The postings in the various process steps require the creation of new G/L accounts. Although it is not mandatory, we recommend creating the following 3 accounts for each landed cost category:

  • Unbilled Payables (for example, Unbilled Payables Freight) with the account type ACLEAR

  • In Transit (for example, In Transit Freight) with the account type ACLEAR

  • Expenses (for example, Freight Expenses) with the account type COSEXP

Note: It is strongly recommended that you use dedicated G/L accounts for clearing purposes for each landed cost category! This significantly supports you in identifying clearing issues in different landed cost categories. In addition, it will avoid mixing landed cost clearing with the regular Goods Receipt/Invoice Receipt clearing.

1.3.2 Edit Account Determination Groups

  • Costs > Groups for General Expenses: For each landed cost category, please create an account determination group and assign it as available in supplier invoice and in other transactions.

  • Costs > Groups for Services: Please refer to point 4 below. Dependent on the decision to which granularity you want to enter the landed cost invoice items, you need to create account determination groups here.

1.3.3 Maintain Account Determination

  • The Account Determination has been enhanced for subledger Accounts Payable by the column Landed Costs Categories, in combination with Material Purchases. Here you need to assign an account for each landed cost category for Unbilled Payables and In Transit

  • Under the subledger Costs > General Expenses, you need to add the account determination groups you created before and assign the corresponding expense account.

1.4 Configuration and derivation settings for expensed landed costs

In the new activity Configuration for Expensed Landed Costs, the account determination group to determine the cost account needs to be assigned per company and business residence. It is recommended to apply different cost accounts/account determination groups for each landed cost category. Additionally, a separation by product category can be set up. Furthermore, you can assign a fixed cost center.

These settings will be relevant for:

  • the landed cost category to be expensed

    • at goods receipt

    • at landed cost clearing

  • the supplier return scenario for initially capitalized landed costs

    • Based on the planned landed cost amounts in the purchase order item, the initially capitalized amounts are handled as expenses. For example, the transportation costs have been paid. Usually, it is not expected that these transportation costs will be reimbursed and therefore now need to be treated as expenses.

For landed cost expenses, a manual assignment of a cost center is not possible. Therefore, the following determination table must be maintained.

Note: Like the landed cost clearing accounts, dedicated expense accounts should be created for each landed cost category. Please double check that the cost centers are assigned to the correct functional areas. Because these settings will also be used in the case of return of materials, they must be available for ALL landed cost categories – not only for categories to be expensed.

2    Maintain user access rights

In context of this new functionality, new work center views were created.

The administrator should assign the following views to the business users who will work with landed costs:

Work Center Purchase Requests and Orders

  • Assign Common Task: Define Landed Cost Components

Work Center Supplier Invoicing

  • Assign View: Landed Cost Invoice Items

Work Center Inventory Valuation

  • Assign View: Landed Cost Clearing


3    Define landed cost components

Landed cost components reflect the additional purchasing costs for a certain topic, for example, freight, insurance, customs and so on, which you want to track. This is the granularity in which you plan the landed costs in purchase order.  In the landed cost invoice, you are assigning the invoice item to the respective landed cost component. Later in the process you will also be using these in the allocation document. It is also the main level for reporting and auditability.

For example, you could distinguish air freight from ocean freight and land freight if you define 3 landed cost components. However, you could also define only one landed cost component freight for all. We recommend using as many components as necessary, but as few as possible, so as not to complicate the handling in the system.

When defining the landed cost components, you need to assign a landed cost category. Please consider that the setting of the landed cost category has an impact on the posting logic (see point 1.2 above). To create landed cost components, go to the Purchase Requests and Orders work center. Under the Common Tasks you will find Define Landed Cost Components:

4    Define product categories or service products for landed costs

To be able to enter landed cost invoice items, you need to at least assign a product category. It is possible to use only one general product category. The recommendation is to create a product category for each landed cost component. This helps you later to analyze the origin of the landed costs. Here too, the recommendation applies to use as many product categories as necessary, but as few as possible, so as not to complicate the handling in the system.

Furthermore, it is also possible to use service products.

When you decide to use product categories, it is required to assign these product categories to the account determination groups (please see point 1.3.2 above). To do that, please go to the finetuning activity Edit Default Account Determination Group for Product Categories:

Back to main blog post.