Keywords: Dynamics GP, tariff, surcharge
Date: 13-MAR-2025
This article discusses methods for handling the scenario where your vendors are subject to tariffs and are passing those costs on to you. The specific method of passing on those costs, and what you want to do about the costs, dictate which solution you need to take.
There are two ways the tariff costs could be passed on: (1) Increased per unit cost from the vendor, (2) Surcharge on the Vendor Invoice.
NOTE: This article is not addressing companies that have to pay tariffs to a government entity.
Increased Cost
If the vendor is increasing the Unit Cost of the product, then the increased cost will flow through manufacturing into your finished good (if you are using Actual Cost).
Given the highly variable environment the last several years due to supply chain disruptions, fuel costs, and tariffs, we have seen an uptick in requests to convert from Standard to Actual costing in Dynamics GP (yes, this is possible). So, one consideration is moving to Actual Cost if you are on Standard Cost.
The next question is: How much will the cost of our Finished Good change due to the purchased material cost changes? With Standard Cost you can use the Standard Cost Changes window to enter the new cost of purchased parts and do a roll-up to see the new finished good cost.
If this affects a large number of parts you can simplify the update using our Proposed Cost Update utility:
MFG PowerPack Proposed Cost Update
If you are already using Actual Cost calculating the expected new cost of the finished good is trickier. We have a couple of tools that can help you: (1) Indented BOM Report, and (2) Actual Cost Rollup.
The Indented BOM Report run from the BOM Maintenance window and includes the unit cost of each component.
Actual Cost Rollup does a “Standard Cost Rollup” for Actual Cost BOMs. This routine tallies up the total cost of all components in the entire exploded BOM. Note that with Actual Cost the roll-up can be tricky because each inventory receipt layer could have a different cost. To help account for this the Actual Cost Rollup module allows you to enter a “Pending Cost” so you can calculate the finished good cost based on an expected material cost.
MFG PowerPack Actual Cost Rollup
Lastly you need to decide what to do about pricing in Sales. The finished good cost will contain the price increases from your vendors, so it either stops with you and lowers your margin, or you change pricing and it flows through to your customers. If the increased costs only affect some parts, you can be strategic about it and notify only the affected customers by running a SmartList on Sales Transactions to find customers who purchased specific items.
Surcharges
The other option is that pricing stays the same from your vendors but they start tacking on a surcharge, and this may already be happening for fuel costs. For various reason you may want to either include the surcharge in the cost of the inventory or pass through the surcharge to your customers.
To include the tariff/surcharge cost into the inventory cost, consider the Landed Cost module in GP. Freight, duties and other costs can be recorded separately from the PO/PO Receipt/Invoice and those costs can revalue inventory. Just be aware of the fact that the Landed Cost Module cannot always accomplish the revaluation and the additional costs hit PPV.
If you use Landed Cost this puts you back into the first scenario where the purchased part unit cost increases and then flows through to the finished good.
Another option is that you want to track the surcharge amount and then allocate that to a surcharge in sales. As already discussed, the tricky part of this is determining how much surcharge to add in sales based on the parts contained in the exploded BOM of the finished good. WilloWare has a solution for this.
At a high level the process works like this (this is all automated by our Surcharge module):
- Add a SURCHARGE item on the PO Invoice to record the surcharge (tariff) amount. Posting the Invoice debits Accrued Surcharge.
- In Sales a routine calculates the amount (dollars) of surcharge that should be added to the invoice by exploding the BOM to find the total quantity of buy items used that were subject to the surcharge (tariff). For example, if the BOM uses 1 of a material that costs $10 and has a 25% surcharge/tariff it would calculate a $2.50 surcharge on the invoice.
- Add a SURCHARGE item on the Invoice to record the total surcharge. Posting the Invoice credit Applied Surcharge.
The Surcharge module provides a more precise method of managing pass through surcharges compared to a blanket surcharge.