Dynamics F/SCM Customer Experience (CRM) Dynamics GP Dynamics Business Central (NAV) Dynamics SL Power Platform Fabric Copilot

[Deb Peters]

We are in the process of implementing Business Central (BC) and determining which costing method to use. In our previous ERP system we have been using Standard cost and would like to consider Average cost but maybe not a great idea right at the start. I have been told if we start with Standard cost we cannot change to Average cost later on without changing our part numbers. I would think that if you changed at a point in time like December 31st and had all transactions held,  you could convert whatever the current cost being used as the starting point for January 1st. can someone confirm for me if you can never change your costing method once you choose one without changing part numbers?

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Deb Peters
Director of Finance, HR & IT
Midwest Rubber Service & Supply
Plymouth MN
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[Ben Baxter]

You can change it, but there is a huge cumbersome process involved.

Personally I would avoid average cost.  The system is actually tracking the average even if you aren’t using average costing.  The biggest headaches we run in to are when a client is using average cost.  Our rule of thumb is Standard on produced Items and FIFO on purchased Items.  Not 100% of the time, but its what we see most of the time.

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Ben Baxter
Consultant
Accent Software, Inc.
carmel IN
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[Deb Peters]

Thank you Ben.  How does BC handle when we buy product for a specific sales order.  Does it use Standard Cost??

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Deb Peters
Director of Finance, HR & IT
Midwest Rubber Service & Supply
Plymouth MN
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[Jason Nicolaou]

Hi Deb and Ben.  Deb will you clarify what you mean by how does it handle?  I am sure that you aware that the financial impacts are different than what users will see on the screen.  Are you specifically asking about the posting routine in the background if standard cost is used AND/OR if BC will apply specific costing to that specific sales order?  Some use cases that I have seen include that customer A gets a certain price if it is for project Z from vendor M, salesperson gets paid on actual cost versus profit, not standard cost, and so on.  Reservation policies / entries will also impact the details that are captured and how the accounting is functioning in the background.  My 2 cents is that BC is doing the computing work so a more detailed costing method like FIFO or LIFO will peel the costing layers without a large amount of additional effort.  In my humble opinion some of the other methods like average were created to simplify accounting because it would have been very time consuming to go back in the ledgers and apply the actual cost for each item sold manually.  Don’t get me wrong there are definitely cases where average and standard cost make sense, they just decreased dramatically when BC started doing the work versus a human.

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Jason Nicolaou
Engagement Manager
Sikich, LLP
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[Michael Carr]

If you set it up for a part (item) and choose standard costs , it wil treat it the same as any other standard part cost depenting on your parameters on the part (item). The fact you bought it for a single order won’t change the treatment

The question is rather wide open so a more detailed question would help…..the problem is during implementation you never know the right questions it seems. Happened to all of us.

I agree with Ben that average cost is not terribly popular amongst the NAV/BC crowd. I don’t use it but I have heard a fair amount of grumbling from those users over the years. 

I am a standard guy, myself.

Feel free to ask any more questions.

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Michael Carr
VP , Finance
Philadelphia Scientific LLC
Montgomeryville PA
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[Kevin Fons]

FIFO is typically what we recommend for both purchased and standard if you are looking for an actual cost. 
We have had very good luck with this for most customers.  Standard cost use has been declining over the years for most companies we work with.

You are correct though you should decide on and implement a cost method at implementation as changing later is not a recommended practice and it is very complex to do and can lead to disastrous data integrity consequences if not done correctly.

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Kevin Fons
Senior Application Consultant
Innovia Consulting
waunakee WI
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