Example

A U.S.-based retailer is selling porcelain tile to its customers for $1.95 per square foot. Seeking to extend their profit margin, the retailer requests price quotes from suppliers in China. Several respond and one is offering the tile at a bargain rate of 75 cents per square foot. The retailer quickly places an order for 7,000 square feet.

Upon receipt of the tile at their warehouse, the following was their purchase and logistics costs

Invoiced purchase price	$5,250.00
Logistics costs
Shipping fees and duties	$4,900.00
Domestic delivery cost	$2,000.00
USDA examination & x-rays	$900.00
Storage container	$1,500.00
Total Logistics costs	$9300.00

1. What is the total landed cost?

• $5,250.00 + $9300.00 = $14,550.00

2. What is the landed cost per square foot?

• $14,550.00/7000 = $2.08

3. Was placing an order for 7,000 square feet from China the right decision?

No, it was not the right decision. The retailer was selling the tiles for $1.95 per square foot and its landed cost is higher ($2.08) even before adding its profit margin. The company made decision based only the invoice price without considering all the other logistics costs.

Question 2. Total Landed Cost Exercise

A U.S.-based retailer is selling porcelain tile to its customers for $4.00 per square foot. Seeking to extend their profit margin, the retailer requests price quotes from suppliers in China. Several respond and one is offering the tile at a bargain rate of $1.50 per square foot. The retailer quickly places an order for 14,000 square feet.

Upon receipt of the tile at their warehouse, the following was their purchase and logistics costs

Activity	Amount
Invoiced purchase price	$10,500.00
Logistics costs
Shipping fees and duties	$9,800.00
Domestic delivery cost	$4,000.00
USDA examination & x-rays	$1800.00
Storage container	$3000.00
Total Logistics costs	?

1. What is the total landed cost?
2. What is the landed cost per square foot?
3. Was placing an order for 14,000 square feet from China the right decision?