Cost Accounting for the Modern Manufacturer

By Anne Kaese | July 29, 2021

Dynamics 365 Finance and Supply Chain Management enables users to collect data from a variety of sources in order to analyze, summarize, and evaluate cost data. Cost data can then be used to make key decisions related to price updates, budgets, cost controls, and more.

Item Model Group Costing Methods

The Dynamics 365 Finance and Supply Chain cost management module has a wide range of functionality, including seven-item model group costing methods. These methods include standard, moving average, FIFO, LIFO, LIFO date, weighted average, and weighted average date. D365 supports having different items with different costing methods.

Costing methods are underpinned by the notion of item model groups. With item model groups, items can be classified as stocked or not stocked, can have their own costing methodology, can have negative inventory policies if appropriate for a specific item, can have general ledger integration, can track workflow for inventory, and can place reservation rules around specific items. All of these rules are put in place to support the underlying infrastructure of an item in terms of how we cost and manage it.

Costing Sheets

In Dynamics 365, a costing sheet is used to answer the question, “how do I cost it?”. Costing sheets format how COGS are viewed for manufactured items and production orders using material, labor, and overhead. They are used for calculating and applying indirect costs and can be configured to only apply these costs in certain scenarios. Calculations can be done using a surcharge, which is percentage-based, or an hourly rate.

Costing sheets are used to create a library of item model groups with standard costs but different rules. This allows for customization and granularity around tailoring the way costs are managed at the item level and the item model group level.


Workspaces and Power BI

Dynamics 365 and Power BI integration allow users to evaluate costing data without having to drill down thousands of line items. This helps understand the true cost of production, as one can drill down and look at standard cost versus actual per order and turn this data into a graphic. Inventory and manufacturing accounting can be accessed from the cost administration and cost analysis workspaces. These workspaces provide a comprehensive overview of the current status, key performance indicators (KPIs), and detection of deviation. KPIs are used to gain insights into efficiencies. Manufacturing accounting lets users handle job order costing in production orders and batch orders, as well as Backflush costing in lean manufacturing.

Cost management Power BI content provides managerial insight into inventory and work-in-progress (WIP) inventory, and how cost flows through them by category over time. This information can be used as a detailed supplement to the financial statement. Cost management Power BI also enables users to view inventory statements and KPIs by item. Variances can be built into useful diagrams that provide insight from a cost analysis point of view. ABC analysis is another useful tool found under cost management. This tool simplifies categorizing items by importance.

Power BI allows for the comparison of cost elements and shows a cost analysis. Costs for product pricing can be easily distinguished using Power BI integration.



Cost Accounting Module: The Big Picture

The cost accounting module is a separate menu item within Dynamics 365 that evaluates cost accounting at a much higher level. This module is a micro-service connected to a data lake and offers cross-cost accounting ledger analysis looking at currency, cost flow assumption, and input measurements. It enables organizations to account for their inventory across multiple cost accounting ledgers based on different currencies, cost flow assumptions, and input measurements. This flexible cost elements setup enables organizations to analyze costs in greater detail. Inventory transactions can be pushed out to various cost accounting ledgers, driving out different cost/profit analyses at a more global level.

Are you a manufacturer looking to get the most out of Dynamics 365? If so, consider registering for our upcoming webinar.

The Modern Manufacturer – Enterprise Asset Management

August 11, 2021

10:00 am – 10:30 am CST


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