Item model groups in D365 for own produced items

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Posted on by Ulrika Zetterfeldt

Hi team,
could someone give me some advice regarding this topic. Any suggestions or tips for reading more would be helpful but in currect setup and going forward.

Our finished products consist of various raw materials which are then processed in different stages where various semi-finished products are manufactured and stored in inventory, ultimately resulting in a finished sales item that is sold to our customers. The idea is also to change the last step, which will be divided into several sub-processes as described below.

What we call Standard Cost is setup according to inventory model FIFO but with Fixed receipt price, see the attached screenshot for STD and FIFO.

Process Description Manufacturing – TODAY

Raw material is purchased and stored in inventory at purchase value and is managed according to FIFO.
Semi-finished product 1, which consists of raw material and various internal processing (gluing and pressing, etc.), is managed according to FIFO; the purchase value of raw material and the cost of our processing is based on a basic calculation – FIFO.
Semi-finished product 2 consists of semi-finished product 1 plus additional processing cost and is managed according to FIFO.
Semi-finished product 3 consists of semi-finished product 2, with additional raw material and then processing cost, and is managed according to FIFO.
Finished product consists of semi-finished product 3, with a shaft mounted and other processing such as sanding/milling, quality control, assembly of lenses, and packing, then this is managed and inventoried according to standard cost calculation – Standard Cost.

Process Description Manufacturing – FORWARD

Raw material is purchased and stored in inventory at purchase value and is managed according to FIFO.
Semi-finished product 1, which consists of raw material and various processing (gluing and pressing, etc.), is managed according to FIFO; the purchase value of raw material and the cost of our processing is based on a basic calculation – FIFO.
Semi-finished product 2 consists of semi-finished product 1 plus additional processing cost and is managed according to FIFO.
Semi-finished product 3 consists of semi-finished product 2, with additional raw material and then processing cost, and is managed according to FIFO.
The finished product in this manufacturing will going forward be divided into three sub-processes:
1. Milling, which then results in a milled frame – Should this be FIFO or Standard Cost?
2. Assembly of Blade – The milled frame has shafts mounted, etc., resulting in a finished frame without packaging – Should this be Standard Cost or FIFO?
3. Packing of frame occurs, and after this the frame is fully ready for sale – Standard Cost.

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Dynamics 365 Finance

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H.M.Burhan 390 Super User 2026 Season 1 on at

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Hi,

Since your semi-finished goods are produced using the FIFO inventory model, it indicates that your raw material costs fluctuate frequently, while your finished goods are sold in a competitive market. When lower-cost raw materials are purchased and consumed in production, the resulting semi-finished and finished goods also carry a lower cost. Based on your business process, the sales team may applies a fixed margin, leading to a lower selling price for those items.

To maintain accurate cost flow, valuation, and margin calculation throughout the production process, the FIFO inventory model should be applied consistently across all product types in the production cycle — including raw materials, semi-finished goods, and finished goods.

Cheers,

Burhan

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Ulrika Zetterfeldt 53 on at

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Hi Burhan,

thank you so much for your imput. May I please ask a follow up question. Our sales prices of the finished goods has the same base price during one year ans that is why we have choosen the standard cost for the finished items when they are added into the finished goods inventory. Thereby, the margin is the same for all sales (if selling price is the same of course) batches, even though some batches had lower cost on raw materials.

Based on this information regarding sales price, would a setup with standard cost on finished goods be okay?

Thanks a lot,
Ulrika

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H.M.Burhan 390 Super User 2026 Season 1 on at

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Hi Ulrika,

Yes, in this specific business scenario, the Standard Cost model is fine for finished goods.

However, you need to review and update the standard cost periodically to avoid large variances between the actual cost and the standard cost.

Cheers,

Burhan

Note: If my answer addressed your question, please mark it as a verified solution so other community members can benefit from it.

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