When it comes to Business Central manufacturing costing, implementations often have two common costing structures that influence budget management and financial reporting:
- Standard Costing emphasizes budgeting and cost control through predetermined costs.
- FIFO Costing (First-In, First-Out), or Actual Costing, values inventory based on the actual costs of items as they are acquired, impacting financial reporting and profit margins significantly.
Standard Costing for Business Central Manufacturing
Standard costing is where manufacturing companies set the expected costs for materials, labor, and overhead in advance. This approach relies on estimates that consider past expenses and future expectations, aiming to predict how much each item should cost to make.
This method is especially useful for controlling costs. It allows companies to compare the planned costs against what they actually spend, helping them see where they’re spending too much or saving money. This comparison is done through a process called variance analysis, where the differences between expected and actual costs are examined. When the real costs are known, the company adjusts the standard costs to match, making sure their budget stays accurate.
For manufacturers, standard costing simplifies things. It uses consistent cost estimates, which makes planning budgets and managing money easier. It also helps measure how well different parts of the company are doing by looking at the variances between expected and actual costs.
This method works best for companies that make a lot of the same product, where the production process doesn’t change much from one item to the next. It requires a dedicated team to keep the cost standards up to date and make sure everything runs smoothly.
FIFO Costing for Business Central Manufacturing
Under the FIFO costing method, inventory valuation operates on the basis that the earliest items placed into inventory are the ones to be sold first. This aligns with manufacturing companies where product costs remain relatively stable, offering a realistic and straightforward strategy for tracking the actual cost of inventory items as they are received.
FIFO costing proves especially beneficial for manufacturing operations with smaller production volumes, typically ranging from 10 to 100 units per production batch. This includes Engineer-to-Order manufacturers and, occasionally, Job Shops, where the precise tracking of inventory items—from acquisition to production order—facilitates efficient inventory management and ensures the timely use of materials.
Business Central Manufacturing Costing
You now know the difference between FIFO and Standard Costing in Business Central manufacturing. However, there are many reasons that you should be aware of that make Business Central a perfect solution for cost management for manufacturers in need of a new ERP.
1. Simplified Cost Management
Business Central offers a unified platform that integrates with your manufacturing processes, tracking every cost from raw materials to shipping. This ensures accurate calculation of the cost of goods sold (COGS) and gross margin, key for setting the right prices and boosting profitability.
2. Flexible Costing Methods
With support for Standard, Average, Specific, LIFO, and FIFO Costing, Business Central gives manufacturers the flexibility to choose the costing method that best fits their needs. This helps in better predicting costs, managing inventory, and understanding the financial impact of production choices.
3. Instant Cost Analysis and Insights
Gain real-time access to cost analysis and reporting with Business Central’s dynamic dashboards. This immediate insight into cost trends and metrics allows for quick identification of savings, pricing adjustments, and overall financial improvement.
4. Integrated Operations
Business Central deeply integrates with supply chain, production planning, and inventory control, ensuring cost data is always current and reflecting operational changes. This holistic view supports informed decision-making and production optimization.
5. Tailored to Your Business
Business Central is customizable and scalable, meeting the unique costing needs of each manufacturer. Whether it’s setting up specific cost categories or integrating with analytics tools, Business Central grows with your business, accommodating more complex costing as needed.
In summary, Business Central simplifies manufacturing costing, providing the tools and flexibility needed for effective cost management and financial analysis.
Closing Thoughts
At Sabre Limited, we are experts in manufacturing. We stand among the best Business Central manufacturing implementation partners across North America. What sets us apart from our competitors is that we use fixed fees instead of time and material billing and we always put the customer first.
Our areas of expertise include:
- Production Manufacturing
- Job Shop Manufacturing
- Engineer-To-Order / Custom Manufacturing
- Project Manufacturing
- Architectural Manufacturing
- Industrial Equipment Manufacturing
If you’re interested in learning more about what Sabre Limited can offer, we’ve been dedicated to helping small to medium-sized manufacturers learn and adopt Business Central. Reach out, and let’s explore how we can contribute to the success of your manufacturing journey. Contact us at info@sabrelimited.com or call (519) 585-7524. We look forward to hearing from you.
