Inventory Costing for

Dynamics 365 Supply Chain

Management TechTalk Series:
Part 1 – Inventory Accounting
Setup
Anne Krupke, Senior FastTrack Solution Architect
Rachel Profitt, Senior FastTrack Solution Architect
Anne Krupke
[email protected]
Sr. FastTrack Solution Architect

linkedin.com/in/annekrupke

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Rachel Profitt
[email protected]
Sr. FastTrack Solution Architect

Twitter: @rachelprofitt
youtube.com/c/Dynamics365Unboxed
linkedin.com/in/rachelprofitt
dynamics365lady.com

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 • Inventory Accounting Setup 
• Inventory Accounting Models
• Standard Costing & Costing Sheet
TechTalk
• Manufacturing Accounting
Series
• Inventory Closing
• Global Inventory Accounting Add-in
Riddle of the day
What kind of bedding does an
accountant have?

Put your answers in the Q&A

panel, and we will reveal the
answer at the end!
 • Discuss inventory costing concepts.
• Review item model groups.

Agenda • Describe how dimension groups affect

costing.
• Review DO’s and DON’Ts for inventory
costing.
Introduction to
costing concepts
Anne Krupke
Why is costing important?

impacts P&L Cost of sales is

generally
Cost drives inventory values
derived from
affects margins
cost of purchase
or production
Basic inventory flow

Receive Invoice Customer Invoice

Create PO Ship goods
goods goods places order goods

Received Cost of Shipped Cost of

not goods not goods sold
invoiced purchased invoiced
Source transactions
Source document Source document line Source transaction

Purchase order Inventory

Purchase order line – transaction –
item 1 serial 1

Purchase order Inventory

Sales order line – transaction –
item 2 serial 2

Purchase order Inventory

Inventory
line – transaction –
adjustment journal
item 3 serial 3
Issues and receipts

Receipts Issues
Physical and financial updates

Physical Financial Physical Financial

Receive Invoice Customer Invoice

Create PO Ship goods
goods goods places order goods

Receipt Issue
Inventory statuses
Receipt status Issue status
Ordered On Order
Registered Reserve ordered
Received *Physical Update* Reserved physical
Purchased **Financial Update** Picked
Deducted *Physical Update*
Sold **Financial Update**

Ordered Received Purchased On Order Deducted Sold

Receive Invoice Customer Invoice

Create PO Ship goods
goods goods places order goods
Transaction update cheat sheet
Transaction Update Source Document Issue vs. Receipt Physical vs. Financial

Product Receipt Purchase order Receipt Physical

PO Invoice Purchase order Receipt Financial
Packing Slip Sales order Issue Physical
SO Invoice Sales order Issue Financial
Report as Finished Journal Production order Receipt Physical
Picking List Production order Issue Physical
Ending Production order Both Financial
Return to Vendor Pack Slip Return to vendor Issue Physical
Vendor Credit Return to vendor Issue Financial
RMA Receipt Customer return order Receipt Physical
RMA Credit Customer return order Receipt Financial
Shipment Transfer order Issue Both
Receipt Transfer order Receipt Both
Journal transactions cheat sheet
Transaction Issue vs. Receipt Physical vs. Financial

Transfer Journal Both Both

Movement Journal Both Both
Counting Journal Both Both
Inventory Adjustment Journal Both Both
BOM Journal Both Both
Project Item Consumption Journal Both Both
Inventory to Fixed Asset Journal Both Both
Item model groups
Rachel Profitt
Item model groups overview
Inventory models
Periodic Perpetual
 First in first out (FIFO)  Moving average
 Last in first out (LIFO)  Standard cost
 LIFO date
 Weighted average
 Weighted average date
Considerations for selecting or changing inventory models

Selecting
• Select before transactions created
• Consult accountant if changing
• Historical data impact

• Anything to standard – yes

Changing
• Standard to moving average - yes
• Periodic type to a different periodic type – no*
• Moving average to periodic – no
• Standard to periodic – no
Change inventory model after transactions exist

1
Count inventory down to zero

2
Perform an Inventory close

3
Set session date to after the closing date

4
Change the item model group
Periodic inventory models
Issues use the running average cost of on hand
inventory

Run recalculations to adjust posted transactions to

reflect the cost model

Inventory closing finalizes adjustments

Marking overrides the costing model and applies an

“actual” cost
Perpetual inventory models
Transactions post at a cost based on the cost model
and do not get adjusted

Inventory close does not make adjustments, but we

always recommend running the close

Discrepancies in posted costs and actuals are

posted to a designated account

Marking does not affect the cost of any transaction

Include physical value considerations

Am I using a Is this allowed

periodic cost according to local
model? regulations/GAAP?

Do you want to Does price often or

include un-invoiced significantly change
receipts in running between receipt
cost calculations? and invoice?
Fixed receipt price
Called Standard cost in AX 2009 and earlier versions

Renamed in AX 2012 with introduction of new Standard costing

Can only be used with perpetual inventory models

Receipt price is used as the standard cost for the receipt

Variances between receipt and invoice are recognized

Typically used when prices do not vary significantly

Inventory close and adjustment updates the issues

Stocked versus Not Stocked

Not
Stocked
Stocked
In inventory

Inventory transactions

Included in cost calculations

On hand inventory maintained

General ledger postings BS P&L

Physical negative inventory example

0 0 -1 0 10 9

Warehouse PO Receipt Warehouse

PO for qty 10 SO for qty 1
pick for qty 1 for qty 10 pick for qty 1
Negative financial inventory example

0 0 -1 0 10 9

Receive PO Ship SO qty Invoice SO Invoice PO Invoice SO

qty 10 of 1 qty of 1 qty of 10 for qty of 1
Dimension groups
Anne Krupke
Storage and tracking dimension groups
Product dimensions
Scenario: financial inventory by site only
Receipts Issues
Qty WH Unit cost Total cost Qty WH Average cost
10 1 10 100.00 -5 2 12.34
6 2 12 72.00 -1 1 12.34
6 1 8 48.00 -3 2 12.34
10 2 15 150.00 -2 1 12.34
10 3 12 120.00 -1 3 12.34
5 1 11 55.00 -2 3 12.34
5 3 17 85.00 -2 1 12.34
7 2 14 98.00 -2 2 12.34
Scenario: financial inventory by site and warehouse
Receipts Issues
Qty WH Unit cost Total cost Qty WH Average cost
10 1 10 100.00 -5 2 13.91
6 2 12 72.00 -1 1 9.67
6 1 8 48.00 -3 2 13.91
10 2 15 150.00 -2 1 9.67
10 3 12 120.00 -1 3 12.06
5 1 11 55.00 -2 3 12.06
5 3 17 85.00 -2 1 9.67
7 2 14 98.00 -2 2 13.91
Scenario: retail stores
Decision Factors

Retail companies often

use average costing Multi-country model

Different costs for different countries?

Multiple legal entities or single?

Franchisee model

Do franchisees manage own supply?

Is a managed distribution model used?
Stores modeled as
warehouses in a site
Scenario: manufacturer
Decision factors

Some manufacturers
prefer actual costing Batch tracking

Do we need batch visibility?

Do we follow FIFO/LIFO policies?

Specific costing

Do batches/serials have their own costs?

Can we support full traceability?
Traceability is critical in
process manufacturing
Recommendations
and resources
Rachel Profitt
DO’s…
DO’s
Run the inventory close and adjustment at least once per period.
Consider your costing method prior to go-live and creating transactions.
Talk with your accountant if you plan to change your inventory costing model
(there can be tax implications).
Reconcile your inventory subledger to the ledger once per period.
Only use financial value on batch/serial dimensions if actuals are needed.
Allow financial negative inventory*
…and DON’Ts
DON’Ts
Make changes to item groups after transactions exist.
Make changes to item model groups after transactions exist.
Make changes to dimension groups after transactions exist.
Use fixed receipt price as a replacement for standard costing.
Use include physical value if there is often variance between receipt and invoice
price.
Enable financial inventory on unnecessary dimensions
Allow negative physical inventory*
Additional documentation
 Cost management home page - Supply Chain Management |
Dynamics 365 | Microsoft Docs
 Yammer : Finance and Operations Insider Program : Cost Accounting
& Cost management : All Conversations
 Ideas List (dynamics.com)
Looking for more?

Vote on additional sessions at aka.ms/D365CostingTechTalks :

• Cost accounting module
• Commodity costing
• Consignment accounting
• Attribute based costing
• Indirect costing
• Lean manufacturing accounting
• Profit-based sales pricing
• Your suggestions
What kind of
bedding does an
accountant have?
Balance Sheets! HAHAHA
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Thank you!

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