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Standard Cost vs FIFO in NAV

  • 1.  Standard Cost vs FIFO in NAV

    SILVER CONTRIBUTOR
    Posted 10-08-2018 04:08 PM
    Per documentation that I have read, Assemblies in NAV are supposed to be set for Standard Cost.  What exactly is the basis for the Standard Cost calculation? What is the impact in NAV of using Standard Cost for the Assembly vs FIFO which is the costing method for all of the pieces in the Assembly?

    Thanks for any help you can provide to clarify.

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    Traci Albosta
    Comitt Well Solutions LLC
    Katy TX
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  • 2.  RE: Standard Cost vs FIFO in NAV

    TOP CONTRIBUTOR
    Posted 10-08-2018 08:05 PM
    I'm not aware of any restriction that forces assembly items to be Standard costed.  I have several set up as FIFO costing and they work just fine.  If you do have an assembled item which is standard costed where the inputs are FIFO, the assembly order would throw a variance when processed for the difference between the sum of the consumed items versus the standard cost of assembled item.  But they are all FIFO, the cost of the assembled item would just be the sun of the component items.

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    David Wiser
    Project Manager/Solution Architect
    Beck Consulting
    Kent WA
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  • 3.  RE: Standard Cost vs FIFO in NAV

    TOP CONTRIBUTOR
    Posted 10-10-2018 01:02 PM
    Costing Method is determined by your finance team and your CPA. NAV does not prefer one costing method to another when doing ANY transactions.

    I would highly recommend you speak with your NAV provider to figure out how costing works before continuing to do setup. The forum is probably not the right place to give ins-and-outs of costing in NAV.

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    Alex Chow
    Dynamics NAV MVP
    AP Commerce Inc.
    Los Angeles CA
    Blog: www.dynamicsnavconsultant.com
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  • 4.  RE: Standard Cost vs FIFO in NAV

    TOP CONTRIBUTOR
    Posted 10-10-2018 04:18 PM
    Alex,

    If this isn't the place to discuss it - where is it?

    There is one major key to understand about costing in NAV.

    At it's heart it is a FIFO system. Standard Cost appears to have been added on to existing FIFO functionality. So it is not Pure standard cost by any means. ( since when does Standard cost theory contain layers? - but NAV's standard will and does create them ) It's also has a update functionality that can force you into the thought that you have to go through a huge recosting worksheet to roll up costs. You don't have to do that to use generic costing but NAV Standard costing was designed in an extremely narrow way. And it does not work very efficiently.

    I have found very few providers who understand that. So if you elected to do standard   --- do not feel restricted to your VAR's "expert" , bring in the best Costing expert you can , regardless of affiliation. There aren't a lot who really understand how it works - most just repeat what they have been told and what the have seen. Not surprising - as most end users won't pay a lot for that kind of knowledge

    But Standard is , IMHO, by far the easiest and most understandable method to use both in NAV and outside of it.

    But NAV has plenty of issues with all the costing methods, so I am sure their are industries and companies standard does achieve the optimal effect for all  - I just haven't worked in one, yet.

    I agree you can use any method with assemblies.

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    Michael Carr
    VP , Finance
    Philadelphia Scientific LLC
    Montgomeryville PA
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  • 5.  RE: Standard Cost vs FIFO in NAV

    TOP CONTRIBUTOR
    Posted 10-10-2018 06:52 PM
    What costing method to use is a big conversation and I agree with another response that an overall discussion of costing would not best be had on this forum. However, we should not discourage anyone from reaching out for help even if we can only point them in a different direction for help - online documentation, their partner, an ISV or Dynamics Communities Academy classes.

    That being said, the following are a few general points on costing in BC/NAV as well a link to documentation with detail you may find helpful.

    1. There is no overall best costing method, though one method may be more prevalent in a specific type of business than another.
    2. What is chosen is a finance/tax and operational decision and based on your business. As someone else referenced, accounting/finance as well as operations and possibly sales needs to be involved if you are looking to change your costing method.
    3. I agree that not all partners understand costing in NAV, but to not include your partner, or someone that is knowledgeable in NAV in that conversation would be a mistake. As alluded to, there are what I will call "nuances" to costing in NAV. Experience with the variety of costing methods and across a variety of businesses could prove a very helpful addition to the team for this conversation.
    4. Until recently, not all costing methods available in NAV were available in D365, now Business Central.
    5. I am not aware of anything in BC/NAV forcing you to use standard cost for assemblies. However, as assemblies are manufacturing "light", it might be more common to recommend using standard cost (the preferred costing method for manufacturing.)
    6. Standard costing is often not chosen as it requires active management, a person needs to be involved to keep it up to date and accurate. Other costing methods in NAV are what you might consider to be automatic.
    7. Changes have been made over the last several versions to costing including how Adjust Cost - Item Entries runs, so keep this in mind when reading any NAV documentation on costing and its related periodic activities.
    8. You may find helpful material on this site related to this topic by @Kim Dallefeld or @Thomas (Tom) Blaisdell. I am sure there are others I have left out, I apologize to them for doing so and hope they chime in with their thoughts.

    Follow the link for more detailed information on costing in BC/NAV.

    Design Details - Costing Methods - Business Central
    Microsoft remove preview
    Design Details - Costing Methods - Business Central
    The costing method determines if an actual or a budgeted value is capitalized and used in the cost calculation. Together with the posting date and sequence, the costing method also influences how the cost flow is recorded.
    View this on Microsoft >

     ​​

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    Cynthia Priebe, MCP, ACP
    Senior Analyst and Project Manager
    Liberty Grove Software

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  • 6.  RE: Standard Cost vs FIFO in NAV

    TOP CONTRIBUTOR
    Posted 10-11-2018 09:11 AM
    Cynthia,

    Thank you for an excellent , informative post.

    If I may further discuss or simply add my opinon on your statement #6  " Standard costing is often not chosen as it requires active management, a person needs to be involved to keep it up to date and accurate. Other costing methods in NAV are what you might consider to be automatic."

    This , as a controller and CPA is not an entirely accurate statement. You can use standard cost with very little overhead and not even any dedicated person to maintain it.

    NAV design , however , assumes that you do so that's how they built it. Nav design assumes a historical looking method of setting standard.  IE - this is what it actually cost us last year so that's what will be this years standard cost. It's a viable strategy to set costs however  it's cost of maintenance is very high and it first involves a massive operation to compile last years data. Standard cost worksheet will do that for you and let you analyze them before posting. It will work for that strategy ( assuming no coding errors in the math  -<GRIN>). But it's difficult and labor intensive and pretty complex so no one understands it very well in the user ( non-accountant) community.

    There is a second option.

    IF you believe in it philosophically, there is a strategy which I call probably will call current standard costing. In it you really don't care about historical costs. You care about the current or future purchase price of the raw materials. You have purchasing change the raw material price changes from your favored supplier as soon it is announced and you rollup your costs through the BOM's immediately. if you want to revalue your inventory you should configure a job que nightly , weekly to   do a global rollup. (note: it would be nice to have a utility to do so!)

    If you can convince management to base standard on current costs   ---- then standard cost can be made as automatic as any of the other costing methods --- probably easier. NAV does have some road blocks to this method due to the integration of the costing utilities design with the other costing methods.

    Thanks for listening!


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    Michael Carr
    VP , Finance
    Philadelphia Scientific LLC
    Montgomeryville PA
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