Microsoft Dynamics 365 BC Inventory Costing
Inventory costing is the backbone of financial accuracy for product-based businesses. Miscalculations in inventory valuation can distort profit margins, tax reporting, and strategic decision-making. Microsoft Dynamics 365 Business Central—a leading ERP solution for small to midsize businesses—delivers robust tools to automate and optimize inventory costing. By leveraging advanced valuation methods, real-time data, and seamless integration with financial modules, Business Central ensures precise cost tracking while reducing manual effort. In this blog, we’ll explore how its inventory costing capabilities empower businesses to maintain compliance, improve profitability, and scale operations.
What is Inventory Costing ?
Inventory costing refers to the methods used to assign costs to stock items, impacting balance sheets, income statements, and tax obligations. Common valuation methods include:
FIFO (First-In, First-Out): Assumes the oldest inventory is sold first.
LIFO (Last-In, First-Out): Values inventory based on the most recently acquired items.
Average Cost: Calculates a weighted average of all inventory purchases.
Standard Cost: Uses predetermined costs for consistency, ideal for manufacturing.
Choosing the right method depends on business needs, industry standards, and regulatory requirements. However, manual tracking is error-prone and time-consuming. This is where Microsoft Dynamics 365 Business Central steps in.
Inventory Costing Methods Dynamics 365 BC
Below are the costing Method options available within Microsoft Dynamics 365 Business Central \Navision
- FIFO: An item’s unit cost is the actual value of any receipt of the item, selected by the FIFO rule. In inventory valuation, it is assumed that the first items placed in inventory are sold first.
- LIFO: An item’s unit cost is the actual value of any receipt of the item, selected by the LIFO rule. In inventory valuation, it is assumed that the last items placed in inventory are sold first. Disallowed in many countries/regions, as it can be used to depress profit.
- Average: An item’s unit cost is calculated as the average unit cost at each point in time after a purchase.
- Specific: An item’s unit cost is the exact cost at which the particular unit was received. In production or trade of easily identifiable items with fairly high unit costs.
- Standard An item’s unit cost is preset based on estimated. When the actual cost is realized later, the standard cost must be adjusted to the actual cost through variance values.
Microsoft Dynamics BC Inventory Costing
Business Central automates complex inventory valuation processes while integrating seamlessly with procurement, sales, and financial management. Here’s how it works:
1. Automated Cost Calculation
Track inventory costs in real time as items move through procurement, production, or sales.
Apply FIFO, LIFO, Average, or Standard Cost methods automatically based on predefined rules.
Adjust costs dynamically for currency fluctuations, freight charges, or supplier discounts.
2. Real-Time Visibility
Monitor inventory values, profit margins, and COGS (Cost of Goods Sold) via intuitive dashboards.
Drill into transactional details (e.g., purchase invoices, production orders) to trace cost discrepancies.
Generate instant reports for audits or compliance checks.
3. Seamless Integration with Finance
Sync inventory valuations with the general ledger for accurate financial statements.
Automate journal entries for inventory adjustments, write-offs, or revaluations.
Align costing data with budgets and forecasts in Business Central’s financial modules.
4. Support for Complex Scenarios
Handle multi-location inventories, cross-docking, and drop-shipments with ease.
Manage landed costs (duties, taxes, shipping) for global supply chains.
Track work-in-progress (WIP) costs for manufacturing businesses.
5. Compliance and Audit Readiness
Adhere to GAAP, IFRS, or local accounting standards with traceable cost histories.
Maintain detailed audit trails for every inventory transaction.
Simplify tax reporting with accurate COGS calculations.
Dynamics 365 Business Central \ NAVISION also offers several options for adding indirect costs to inventory value. Item Charges may be used to pass through additional costs in a landed cost model.
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