The costing method is chosen once and almost permanently. Here are the options Business Central gives you, the local constraints that narrow them, and the trap that catches most implementations.
Business Central supports five inventory costing methods: FIFO, LIFO, Average, Specific and Standard. The method is set on the item card in the Costing Method field — and once entries exist for that item, changing it through standard functionality is effectively impossible.
For Ukrainian statutory accounting the choice narrows immediately: LIFO cannot be used. National accounting standard 9 "Inventories" lists the permitted methods for measuring inventory on disposal — specific identification, weighted average, FIFO, standard cost and retail price. LIFO is not among them.
| Business Central | National standard 9 | Usable in Ukraine |
|---|---|---|
| FIFO | cost of earliest receipts | yes, the most common choice |
| Average | weighted average cost | yes |
| Specific | specific identification | yes, for unique items |
| Standard | standard cost | yes, with mandatory variance analysis |
| LIFO | no equivalent | no |
The retail price method from the national standard is not implemented as a separate costing method in standard Business Central — it is covered through retail accounting configuration or an industry extension.
Worth noting: the standard requires one method for all inventory items with the same purpose and conditions of use. Business Central lets you set the method per item, so the technical freedom is wider than the accounting rule. The policy belongs in your accounting policy document, not in the judgement of whoever creates the item card.
FIFO is the default choice for most trading and manufacturing companies. Cost of sales is tied to specific receipt batches and the balance sheet carries inventory at the most recent prices. In a rising-price environment FIFO produces a lower cost of sales and therefore higher reported profit.
Average smooths fluctuations. It makes sense when batches are homogeneous and indistinguishable to the business: bulk materials, fuel, small components. Two settings matter and are often overlooked:
Specific is for cases where each unit has its own value: vehicles, equipment, jewellery. It requires serial or lot tracking.
Standard suits manufacturing with an established technology. Cost is fixed at a standard, and the gap between standard and actual accumulates as variances to be analysed separately. It is a powerful management tool but demands discipline: standards must be recalculated, or variances grow until the reporting becomes meaningless.
The most common complaint after go-live is "the cost in the report is not what it should be". Nine times out of ten the cause is not the method but a missing adjustment.
Here is the mechanism: at the moment of shipment the system does not always know the final cost of the batch — freight, customs charges or a late vendor invoice may still be added. So Business Central first posts an expected cost and then recalculates the chain through the Adjust Cost — Item Entries batch job.
Until the adjustment runs, reports show an intermediate picture. The fix is not to run it manually but to automate it: Inventory Setup has an Automatic Cost Adjustment parameter ranging from "never" to "always". Daily recalculation is a workable compromise for most companies; at high volumes it is moved to an overnight window.
Next to it sits Automatic Cost Posting — whether results flow straight into the general ledger. With it switched off, inventory and finance drift apart and the difference has to be hunted down by hand.
-->The Costing Method field is technically editable as long as the item has no entries. After the first transaction, changing it would mean recalculating the entire movement and costing history — which is not a setting change but a project of its own, with reposting and balance reconciliation.
The practical workaround, when the method really must change: create a new item card with the required method, transfer the balance as of a cut-off date and block the old card. The history then splits into two parts, and you live with that in reporting.
The conclusion is straightforward: the costing method is decided before data migration, together with the dimension structure and the chart of accounts. It is one of those parameters where the cost of a mistake is measured in months, not hours.
For everything else that has to be settled before moving data, see our data preparation checklist.
Leave your details and we'll send the details of a free process audit. We reply within one business day.
or write directly: nbcs365@zohomail.eu · +380 98 107 5878