web
You’re offline. This is a read only version of the page.
close
Skip to main content

Announcements

No record found.

News and Announcements icon
Community site session details

Community site session details

Session Id :
Dynamics 365 Community / Forums / Small and medium business | Business Central, N... / Is Hybrid Costing Poss...
Small and medium business | Business Central, N...
Answered

Is Hybrid Costing Possible? (Average for Materials + Standard for Capacity/Overhead)

(3) ShareShare
ReportReport
Posted on by LL-11041800-0 41

Hello everyone,

I am looking to validate if a specific "Hybrid" costing model is achievable via standard configuration in Business Central, or if this requires significant customization.

The Goal:
We need a Finished Good unit cost that reflects:

  1. Materials: "Real-life" market fluctuations (Moving/Weighted Average).

  2. Labor/Overhead: Stable, pre-defined monthly rates (Standard).

Proposed Setup:

  • Item Costing Method: Average (for both Raw Materials and Finished Goods).

  • Capacity (Work Centers): "Unit Cost" populated with a fixed rate (reviewed monthly).

The Workflow Scenario:

  1. Raw Material: We purchase raw material. We apply Landed Costs (Freight/Duties) via Item Charges.

    • Requirement: Does the Item Charge application update the "Unit Cost" (Weighted Average) immediately upon posting the Invoice/Receipt?

  2. Production: We run a Production Order.

    • Consumption: Consumes Raw Material at its current Average Cost.

    • Capacity: Consumes Machine Hours at the Fixed Rate defined on the Work Center card (e.g., $20/hr rent + $5/hr labor).

  3. Output: We post the Output.

    • Requirement: We expect the Finished Good value to be: (Total Material Avg Cost + Total Capacity Fixed Cost) / Qty Produced.

My Specific Questions:

  1. If the Finished Good is set to Costing Method: Average, will BC automatically accept the "Standard" rates from the Work Center/Routing lines and roll them into the Finished Good's weighted average value?

  2. Regarding Variance: Since the Item is set to "Average," I assume the system will simply value the inventory at the calculated rate. How do we handle the variance between the Allocated Overhead (the $20/hr rate) and the Actual G/L Bill (e.g., the actual Electric bill at month end)?

    • Desired behavior: Inventory holds the allocated cost; the difference between Allocated and Actual bills hits a P&L Variance account.

Has anyone implemented this specific mix of Average Material + Standard Capacity successfully?

Thanks!

Categories:
Dynamics 365 Business Central
I have the same question (0)
  • Verified answer
    OussamaSabbouh Profile Picture
    OussamaSabbouh 10,875 Super User 2026 Season 1 on at
    Hello,
     
    Yes — BC can do Average-cost materials + fixed (standard) capacity rates with no customization.
     
    Item Charges update Average Cost immediately.
     
    Finished Goods with Average costing will include the fixed routing rates.
     
    Variances between fixed OH rates and actual month-end bills are handled in G/L, not via BC’s variance accounts.
     
     
    This “hybrid” setup is fully achievable using standard configuration.
     
    Regards,
    Oussama Sabbouh
  • Verified answer
    Ben Baxter Profile Picture
    Ben Baxter 6,817 Super User 2026 Season 1 on at
    As a partner who has been doing Business Central deployments for over 15 years, I would tell you not to use Average Costing, ever.  Using FIFO will still give you tracking of market variable costs, AND the Item Card's Unit Cost field will display the Average Cost of your current inventory.  It reduces the headaches associated with Average costing.
     
    That being said, your approach of FIFO costing your raw materials and a set cost on your capacities is extremely common.  The only difference is we see a lot of Standard Costing on the Finished Goods produced.  As long as you re-roll your Standard Costs once a year, you'll likely keep your variances to an acceptable level.
     
    If you're finished good is more specialized, you could look at Serial or Lot Tracking which would allow you to pin the exact production cost to the Item Tracking entry, if desired.
     
    Again, I would caution you away from Average Costing, but otherwise your approach is very typical in Business Central deployments.
     
    Best Regards,
    Ben Baxter
    Accent Software Inc
  • LL-11041800-0 Profile Picture
    LL-11041800-0 41 on at
    Thank you for the response. I have 1 follow up question.

    Is there any standard functionality that allows the Work Center’s "Unit Cost" to be updated automatically based on actual G/L expenses (e.g., taking the actual monthly electric bill and dividing it by recorded capacity)? Or is the "Unit Cost" field strictly a static figure that we must manually calculate and update on a periodic basis?

    I want to confirm if we are locked into manual periodic updates for the labor/overhead rates, or if there is a dynamic way to handle this out-of-the-box.

     

    Thanks again!!

  • LL-11041800-0 Profile Picture
    LL-11041800-0 41 on at
    @Ben Baxter Thank you very much for the information. I wonder what would be the issues using Average Cost?
     
    Appreciate it!
  • Suggested answer
    Ben Baxter Profile Picture
    Ben Baxter 6,817 Super User 2026 Season 1 on at
    Work/Machine Center costs are static.  You could build a function that runs a cost increase by a set factor, but nothing looks back at your G/L actuals to generate a suggested increase.
     
    Average Cost is an absolute pain to make corrections to.  Unless you maintain perfect data (which no one does/can), you'll eventually have issues and regret ever considering Average Cost.
     
    Please be sure to mark answers as Verified Solutions to allow other forum Users to see this request has solutions posted.
     
    Best Regards,
    Ben Baxter
    Accent Software Inc

Under review

Thank you for your reply! To ensure a great experience for everyone, your content is awaiting approval by our Community Managers. Please check back later.

Helpful resources

Quick Links

Introducing the 2026 Season 1 community Super Users

Congratulations to our 2026 Super Stars!

Congratulations to our 2025 Community Spotlights

Thanks to all of our 2025 Community Spotlight stars!

Congratulations to the January Top 10 Community Leaders

These are the community rock stars!

Leaderboard > Small and medium business | Business Central, NAV, RMS

#1
OussamaSabbouh Profile Picture

OussamaSabbouh 2,155 Super User 2026 Season 1

#2
YUN ZHU Profile Picture

YUN ZHU 1,043 Super User 2026 Season 1

#3
Dhiren Nagar Profile Picture

Dhiren Nagar 955 Super User 2026 Season 1

Last 30 days Overall leaderboard

Featured topics

Product updates

Dynamics 365 release plans