Semi finished good cost issue

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Posted on by Niki

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Hi experts,

This SFG used for my production order as a raw material.When i look into production journal entries it shows cost per unit is 5880.59 for this RM. But I used the costing method as FIFO. First quantity 56 should consume in 6602. 13 and second 97 quantity should consume in 5464.02 unit prices. But why the system consume my all 153 quantity to average cost. It is not the behaviour of FIFO. what is the reason for getting this average cost in my production order. Or do i have misunderstanding?

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OussamaSabbouh 5,798 on at

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Hello,

FIFO affects item sales, not production output. The 5,880.59 cost comes from actual component and capacity costs rolled up in that production order. Run Adjust Cost – Item Entries to finalize it. FIFO will apply later when selling the finished item.

Regards,

Oussama Sabbouh

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Jainam M. Kothari 15,639 Super User 2025 Season 2 on at

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Hello,

If you're using FIFO costing but your production order shows a single average cost (e.g., 5880.59) instead of consuming inventory at the actual FIFO layer prices (e.g., 6602.13 and 5464.02), it could be due to timing of postings, internal production of the SFG item, or cost adjustments that average the cost.

FIFO relies on exact posting dates and available inventory layers, and if the system can't match them precisely—especially before running "Adjust Cost - Item Entries"—it may temporarily apply average cost.

Reviewing item ledger and value entries, and ensuring cost adjustments are posted, can help clarify the actual cost flow.

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Valentin Castravet 31,342 Super User 2025 Season 2 on at

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FIFO definitely applies to component costs as well, it’s not limited to sales. The reason you’re seeing average cost is that, based on your screenshot, Automatic Cost Adjustment isn’t enabled in the Inventory Setup page. We know this because the Cost is Adjusted field in your screenshot is set to No. When an item's cost is adjusted that field will be set to yes.

Business Central initially uses the item’s average cost for transactions. When you run Adjust Cost – Item Entries, the system recalculates and applies the correct cost according to the item’s costing method (e.g., FIFO). You can run Adjust Cost - Item Entries manually or have it run automatically by setting Automatic Cost Adjustment to Always in the Inventory Setup page.

Valentin Castravet
Work: Zander ERP Services
Blog: Dynamics 365 Business Central Insights
LinkedIn: www.linkedin.com/in/valentin-c-0500a247/

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Niki 427 on at

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Hello @Valentin Castravet,

Thank you for replying me.

Although I have set the Automatic Cost Adjustment to 'Always', the unit cost has not been adjusted. However, I can see that the cost for my other SFG items has been adjusted correctly. Could you please suggest me a another way to fix this.

Item transaction history:

I uploaded OB and 17/10/2025 I produced this item as SFG and at the same day I consume this item to produce my FG. I actually did these transactions on 6th November 2025 since I am posting backlog data.

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Gregory Mavrogeorgis 763 on at

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Hi,

Even with FIFO, BC posts production consumption at a provisional running average. In your screenshot, the decrease (-153) shows 5,880.59 because it’s the weighted average of the two open layers:

56 @ 6,602.13

97 @ 5,464.02
Average = (56×6602.13 + 97×5464.02) / 153 ≈ 5,880.59

FIFO is applied after you run cost adjustment.
Fix

Run Adjust Cost – Item Entries (filter to the item/date if you like).

Then Post Cost to G/L.

After that, the consumption will be revalued to pull 56 units from the 6,602.13 layer and 97 units from the 5,464.02 layer, as FIFO dictates.
Tips

Set Automatic Cost Adjustment = Daily to avoid this confusion going forward.

Avoid negative inventory on the item/location/date—negatives can muddy applications until adjustment runs

If you find it helpful please mark it as verified

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Jeffrey Bulanadi 8,760 on at

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Hi,

The behavior you're seeing is common in BC when working with production orders and FIFO costing. Even though FIFO is your selected costing method, the system may initially show average cost values in production journal entries due to how cost adjustments are handled.

Here’s what’s happening:

FIFO costing method

FIFO means the system should consume inventory in the order it was received, in your case:

First 56 units at 6,602.13

Next 97 units at 5,464.02

That would result in a weighted cost, not a flat average.

Why you’re seeing 5,880.59

The cost shown in your production journal is likely a temporary average cost, not the final FIFO cost. This happens because:

The production order is not yet finished

The Adjust Cost - Item Entries batch job has not been run

BC uses estimated costs until final adjustments are posted

How to get correct FIFO cost

Finish the production order

Run the Adjust Cost - Item Entries batch job

Review the Value Entries and Item Ledger Entries after adjustment

This process recalculates costs based on FIFO and updates all related entries.

Where FIFO applies

FIFO is enforced during:

Item consumption

Cost adjustment

Inventory valuation

But not always during initial posting of production journals.

Helpful Reference
About finished production order costs – Microsoft Learn
Standard vs FIFO costing method – Dynamics Community
Overview of manufacturing costing – Probitas"

If you find this helpful, feel free to mark this as the suggested or verified answer.

Cheers
Jeffrey

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Niki 427 on at

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Hello @Jeffrey,

Thank you so much for responding me.

As you mentioned,

1. I have already finished my production order

2. I have set the automatic cost adjustment= Always in inventory setup.

Even above conditions are already met, still i can seen average cost for this SFG in my production entries ( item ledger enteris and value entries)

Could you please explain more to fix this issue?

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YUN ZHU 95,449 Super User 2025 Season 2 on at

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Hi, Try running the following batch first to see if it resolves the issue.

https://learn.microsoft.com/en-us/dynamics365/business-central/finance-about-finished-production-order-costs?wt.mc_id=DX-MVP-5004336

Thanks

ZHU

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