Managing inventory costs
Cost management, also referred to as 'costing,' is concerned with recording and reporting business operating costs. It includes the reporting of manufacturing costs and inventory costs, that is, the value of items.
The following table describes a sequence of tasks, with links to the articles that describe them.
To make sure that inventory costs are recorded correctly, you must set up various fields and pages before you begin to make item transactions. Typically, businesses choose a specific costing method and apply that to inventory items, for example, to help them track the value of items on stock.
| To | See |
|---|---|
| Specify a default costing method for the company to govern how incoming cost is used to assess inventory value and the cost of goods sold. | Set Up General Inventory Information |
| Specify a costing method on individual items if they require a different costing method. | Register New Items |
| Define inventory periods to control inventory value over time by disallowing transaction posting in closed inventory periods. | Work with Inventory Periods |
| Ensure that sales returns are applied to the original outbound transaction to preserve inventory value. | Exact Cost Reversing Mandatory field on the Sales & Receivables page |
| Ensure that purchase returns are applied to the original inbound transaction to preserve inventory value. | Exact Cost Reversing Mandatory field on the Purchases & Payables page |
| Set up the rounding rules to apply when adjusting or suggesting item prices and when adjusting or suggesting standard costs. | Rounding Method page |
Central principles to understand are that costing methods define how items are valued when they leave inventory, that cost adjustment updates the cost of goods sold with related purchase costs posted after the sale, and that inventory values must be posted to dedicated G/L accounts at regular intervals.
| To | See |
|---|---|
| Ensure that you know the cost of shipped items by assigning added item costs, such as freight, physical handling, insurance, and transportation that you incur after selling. | Use Item Charges to Account for Additional Trade Costs |
| Appreciate or depreciate the value of one or more items in inventory by posting their current, calculated value. | Revalue Inventory |
| View and manually change certain item application entries that are created automatically during inventory transactions. | Remove and Reapply Item Ledger Entries |
| Adjust item costs, either automatically or manually, to forward cost changes from inbound entries to their related outbound entries. | Adjust Item Costs |
| Perform period-end control and reporting tasks, such as calculate the value of inventory and post costs to the general ledger. | Reporting Costs and Reconciling with the General Ledger |
| Learn how you can use the job queue to move the tasks for adjusting inventory cost or reconciling it with the general ledger to the background. | Adjust and Reconcile Inventory Cost with General Ledger with Job Queue |
| Use the Applies-from Entry field in the item journal to manually create a fixed application between an inbound transaction and the original outbound transaction. | Close Open Item Ledger Entries Resulting from Fixed Application in the Item Journal |
Use special costing functions for every-day item transactions in the item operations.
| To | See |
|---|---|
| Read why standard costs are often used by manufacturing companies as a valuation base for components and end items and how to periodically update the standard costs of components, in assembly or production BOMs, and roll the new costs up to the parent item. | About Calculating Standard Cost |
| Calculate the unit cost of a BOM item based on the unit costs of its underlying components. | Work with Bills of Material |
| Complete the costing life cycle of a produced item by adjusting the costs and reconciling the value entries with the general ledger. | About Finished Production Order Costs |
Read various conceptual information to understand the principles and definitions that govern the inventory costing accounting functionality in Business Central.
| To | See |
|---|---|
| Understand all mechanisms in the costing engine, including what happens when you post assembly and production transactions. | Design Details: Inventory Costing |
| Distinguish the five different costing methods and their effect on cost flows. | Design Details: Costing Methods |
| Learn how item application entries dynamically link inventory decreases with increases to keep control of cost flows. | Design Details: Item Application |
| Understand the cost adjustment mechanism, which ensures that costs are brought forward even if inventory transactions happen in a random manner. | Design Details: Cost Adjustment |
| Distinguish expected cost (not yet invoiced) from actual cost and learn how it is managed in the general ledger. | Design Details: Expected Cost Posting |
| Learn how an item's average cost is dynamically calculated according to the selected average cost period. | Design Details: Average Cost |
See Also
Managing Inventory Costs
Work with Business Central
See also
Finance
Inventory
Sales
Purchasing
Work with Business Central