Inventory costing in New Microsoft Dynamics AX

Depending on your business, industry vertical; the choice of an inventory costing model greatly impacts your financial and management reporting.

Inventory costing plays a significant role in knowing the true financials of an organization and is quite a comprehensive topic. This post is share knowledge about various costing options, however their fitment to the business model, industry vertical, compliance, etc. requires a detailed exercise, niche expertise and spans multiple domains cost accounting, financials, supply chain, etc.

Sharing insights on inventory costing models available in New Microsoft Dynamics AX and their behind the scenes calculations:

• FIFO
• LIFO
• LIFO dated
• Weighted average
• Weighted average dated
• Moving average
• Standard cost

Following costing methods need closing for arriving at accurate cost as they need settlements between receipts and issues:

Following costing methods doesn't need closing for arriving at accurate cost as there is no settlements:

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FIFO

FIFO inventory costing technique in simple terms is based on ‘First In First Out’ i.e. the first receipt is to be settled with the first issue transaction.

The example uses an opening inventory (Quantity = 1 and Value =100$)

Below is an example showcasing the date of transaction and it's type (receipt/issue) and the running weighted average cost price until the inventory is revalued or closed to be assessed by the costing model.

• The financial cost amount is posted when the transaction is financially updated (viz. Purchase order is invoiced)
• Cost price using the costing model (FIFO) is like a virtual placeholder to post the adjustment between the running weighted average cost price and FIFO costing.

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LIFO

LIFO inventory costing technique in simple terms is based on ‘Last In First Out’ i.e. the last receipt (at the time of closing) is to be settled with the first issue transaction.

The example uses an opening inventory (Quantity = 1 and Value =100$)

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LIFO dated

LIFO dated inventory costing technique in simple terms is based on ‘Last In First Out’ date wise i.e. the latest receipt is to be settled with the issue transaction.

The example uses an opening inventory (Quantity = 1 and Value =100$)

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Weighted Average

Weighted average inventory costing technique in simple terms is a Periodic weighted average principle i.e. the issues are valued basis the average of the receipts during the inventory closing period.

The example uses an opening inventory (Quantity = 1 and Value =100$)

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Weighted Average dated

Weighted average dated inventory costing technique in simple terms is a Periodic weighted average principle per day i.e. the issues are valued basis the average of the receipts for every day.

The example uses an opening inventory (Quantity = 1 and Value =100$)

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Standard cost

Standard costing technique in simple terms is a statistical and fixed cost approach i.e. the issues are always valued basis the active standard cost price on the item irrespective of the receipts.

The example uses an opening inventory (Quantity = 1 and Value =100$)

As standard cost does not require inventory closing to get the real cost as the cost is frozen upfront, any deviations in the input cost is posted as variances. Thus the adjustment entries are seen on the receipt type transactions.

Inventory closing for standard cost is not needed but the allocation of the variances captured must be amongst your planned task in the financial year end process.

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Moving Average

Moving average technique in simple terms is a point in time cost method (perpetual type) i.e. the issues are always valued basis the point in time cost price on the item.

The example uses an opening inventory (Quantity = 1 and Value =100$)

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