Why is my actual landed cost above budget?
Reconcile the shipment against the approved budget, separating quantity, unit price, payment exchange rate, freight and customs differences. Give each explanation a named owner and supporting documents, then reconcile total spend and cost per sellable unit. Cambridge China Bridge can help investigate factory-side differences through its staff in China.
Freeze the budget and define what you are comparing
Keep the approved budget unchanged. Record its product specification, quantities, currency, delivery scope, freight assumptions and treatment of VAT, samples and tooling. Compare the same order and destination. Use Understanding your landed price for the cost components; this review explains why the outcome differed.
Appoint a buyer-side finance lead to maintain the reconciliation. Gather purchase orders, approved changes, invoices, payment records, freight bills, the customs declaration and warehouse receipts. Mark missing bills as estimates and show unsettled credits separately. Compare both total shipment cost and cost per sellable unit, because a smaller usable delivery can raise unit cost without raising total spend.
Give each explanation a named owner
Assign a named person to each category below, with a document request and response date. An explanation owner gathers evidence and resolves the question; this assignment does not decide who must bear the charge. For the operational boundaries, see Sourcing agent vs freight forwarder vs customs broker.
Require each response to state the budget assumption, actual result, cause, approval history and proposed action. Avoid explanations such as 'shipping was expensive' without a charge breakdown. The finance lead checks that explanations reconcile to the accounts and that the same difference has not been counted elsewhere.
| Difference | Explanation owner | Evidence to request |
|---|---|---|
| Quantity and sellable yield | Buyer’s purchasing lead, supported by warehouse and quality staff | Order, packing list, receipt count, inspection findings and credits |
| Unit price | Buyer’s purchasing lead, supported by the factory or sourcing contact | Approved quotation, specification changes and invoice lines |
| Payment exchange rate | Buyer’s finance lead | Budget rate, currency payment amounts, sterling settlements and bank fees |
| Freight and handling | Named forwarder contact, coordinated by the buyer’s logistics lead | Booking quotation, measured cargo details and itemised charges |
| Customs | Named customs broker contact, coordinated by the importer’s finance lead | Declaration, valuation calculation and tax breakdown |
Separate quantity, price and payment currency
Build a running reconciliation from budget to actual. First replace budgeted purchased quantity with actual invoiced quantity while retaining budgeted unit price and exchange rate. Then replace unit price while retaining that quantity and the budget rate. Finally replace the payment conversion with actual sterling settlements, showing bank fees separately. This fixed sequence allocates combined effects consistently; document it and use it again.
The purchasing lead should distinguish approved extra goods from shortages, price changes and altered specifications. Reconcile invoiced, shipped, received and sellable quantities separately. A shortage or rejection is not automatically a reduction in the amount paid: show any confirmed credit explicitly. The finance lead should match deposits and balance payments to their own settlements. See Budgeting exchange-rate risk for future orders.
Explain freight changes line by line
The logistics lead should ask the forwarder to compare the booking quotation with the final bill on the same route, transport mode and delivery scope. Check actual carton dimensions, weight, consolidation, surcharges, origin handling, destination handling and delivery. Separate additional services from higher charges for unchanged services, and identify duplicated items.
For storage or delayed collection charges, request the arrival, release, collection and return records together with the charging basis. Identify what held up the shipment and who controlled that step. If packaging increased cargo volume, involve the purchasing lead. Keep the freight bill difference here and any resulting change in customs tax in the customs category.
Reconcile customs separately from bank payments
Ask the broker to compare the budget assumptions with the declaration: goods value, freight and insurance included in valuation, commodity code, origin, duty rate and customs currency conversion. Request a written calculation showing which changed inputs explain the tax difference. Use What is customs value? for valuation detail rather than rebuilding the rules in this review.
Keep the broker’s customs conversion explanation separate from the finance lead’s payment exchange-rate explanation. Separate duty from import VAT and apply the same VAT treatment in budget and actual. If a tax-affecting declaration error is found after clearance, ask the broker to identify the correction route: HMRC says amendment requests need contact with HMRC and are reviewed.
Close the gap and change the next budget
Replace the remaining budget allowances with actual costs or clearly labelled estimates. Show any residual difference as unresolved, with a named owner and the missing evidence. The running reconciliation must arrive at actual shipment cost. Then divide by actual sellable units and explain the separate effect of shortages or rejected stock on unit cost.
The finance lead should close each item only when its explanation and supporting documents agree. Record approved scope changes, budget omissions, billing errors and operational failures separately, with actions and owners. Keep disputed recoveries visible until resolved. Update the next budget’s assumptions without rewriting the original, and retain the completed reconciliation alongside the order records.
Frequently asked questions
Who should investigate a landed cost overrun?
A buyer-side finance lead should own the reconciliation, with named purchasing, logistics and customs contacts explaining their categories and supplying documents.
How do I separate price and exchange-rate differences?
Recalculate the goods at actual quantity and budgeted price, then actual price at the budget rate, then actual sterling settlement. Record bank fees separately and keep the sequence consistent.
Why did unit cost rise when total cost fell?
Fewer sellable units may be spreading freight, tooling and other costs across a smaller delivery. Reconcile total spend separately from received and sellable quantities.
Does explaining an extra charge mean accepting it?
No. Record the cause and supporting evidence, then check the agreed scope and approval history. Assign responsibility for resolving a disputed charge separately from responsibility for explaining it.