Who this is for
Anyone adding an extra cost line to a PO, shipment, or receiving report and pausing at the Cost Allocation dropdown. The method you pick decides how the charge is split across items at receiving — and therefore each item's landed cost.
Rules of thumb
| The charge is driven by… | Use | Typical charges |
|---|---|---|
| How much the goods are worth | Value based | Duty, insurance, tariffs |
| How heavy the goods are | Weight based | Air freight, LTL/parcel freight |
| How much space the goods take | Volume based | Ocean container freight, storage |
| How many pieces there are | Unit based | Per-piece handling, inspection, labeling |
Why it matters: the same $500, three ways
A receipt has 90 units of a light $2 item and 10 units of a heavy $150 item, with $500 freight:
- Unit based — every piece gets $5.00. The $2 item now costs $7.00 (+250%!); the $150 item barely moves.
- Value based — the expensive item absorbs ~89% of the freight; the cheap item's cost barely changes.
- Weight based — the heavy item absorbs most of the freight, which usually mirrors what the carrier actually charged you.
Picking unit-based for a weight-driven charge can badly distort the landed cost of small, cheap items — that's the most common mistake we see.
Good to know
- Each extra cost line has its own allocation method — freight can be weight based while duty on the same shipment is value based.
- Weight and volume allocation need dimensions on your products; see Understanding Landed Cost Allocation by Weight and Volume.
- Full mechanics reference: Cost Allocation Methods and Cost Type vs. Cost Allocation Type.
- Cost rules carry an allocation method too, so auto-generated charges allocate correctly (Automatically add freight, duty, and handling charges to purchase orders).
Related questions this answers
- "Which cost allocation should I pick for freight?"
- "Why did a $2 item's cost jump after receiving?"
- "Can duty and freight on one shipment allocate differently?"