Setting the correct costing method according to item type and business environment is important to ensure economical inventories.
There are several costing setups in Business Central, and each one has its own advantages and disadvantages. Ultimately, the financial management team will choose the company’s preferred costing method.
The Costing Method options [per Item] are:
- FIFO (First In First Out) – this method uses the actual value of the earliest (by Posting Date) open positive entries with Remaining Quantity to move costs for outbound transactions.
- Standard – this method uses the Standard Cost specified for that Item to move costs for outbound transactions.
- Specific – this method uses the exact cost of that unit which was recorded upon the inbound transaction to move costs for outbound transactions of that unit. This method requires both inbound and outbound item tracking and is most frequently used for Serialized Items.
- LIFO (Last In First Out) – this method uses the actual value of the latest (by Posting Date) open positive entries with Remaining Quantity to move costs for outbound transactions.
Documents and best practices provided by Microsoft are located here.