Inventory Costing Methods: What they do and how to choose them

Dynamics 365 Business Central

The article discusses the importance of inventory costing for businesses that trade physical products.
Business Central supports multiple inventory costing methods, including FIFO, LIFO, Average, Specific, and Standard.
The default inventory costing method in Business Central can be overridden by individual item costing methods.
It is important to ensure that the chosen inventory costing method complies with local accounting standards.
FIFO assumes that the first items received in inventory are sold first and is often used when product costs are stable.
LIFO assumes that the last items received in inventory are sold first, but it is disallowed in many regions.
Average costing calculates the unit cost as the average cost at each point in time after purchase and is preferred for unstable product costs.
Specific costing is used for easily identifiable items with high unit costs that are tracked with serial numbers.
Standard costing is based on estimates and is commonly used in discreet manufacturing to account for material and overhead costs.

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