Using Dynamics Business Central to Capture the True Costs of your Manufacturing Process

If you’re in manufacturing, you probably know that figuring out what it actually costs to make your products isn’t always straightforward. It’s not just about the price tags on your raw materials – every little thing, from shipping fees to machine hours and overtime, can sneak into your final numbers. That’s why so many folks end up guessing, crossing their fingers, and hoping those guesses are close enough.

Microsoft Dynamics Business Central can take those wild guesses and turn them into reliable numbers. Crestwood’s team has experience helping businesses set up and run Business Central to not only accurately track these costs, but identify hidden areas for improvement as well. Let’s walk through how it helps you track the true cost of manufacturing.

Step 1: Tracking Landed Costs for Raw Materials

Let’s kick things off with your shopping list – raw materials. Say you buy a batch of steel. You don’t just pay for the steel itself. You might pay extra for shipping, customs, insurance, or even a “handling fee” that nobody likes. All of that adds up to your your landed cost.

Example: You get steel coils from Germany. They cost $1,000 per ton, but that’s not all. Shipping is another $100, import duties set you back $50, and insurance tacks on $10. Suddenly, your actual cost is $1,160 per ton- quite a jump from the sticker price!

With Business Central, you can plug in all those extra costs right in your purchase order. There are landed cost codes for things like freight and customs, and the system spreads those costs across your materials. That way, your inventory reflects the real price, not some wishful thinking.

Step 2: Taking Materials Out of Inventory and Using Them

Once those steel coils or other materials are in your warehouse, it’s time to put them to work. In Business Central terms, you’re “relieving” inventory – basically, moving it from storage onto the production line. “Consuming” is just a fancy way of saying you’re using up those materials to build something.

Example: You need 100 pounds of steel for a batch of parts. As soon as your team grabs that steel for production, Business Central subtracts it from your inventory and records the cost. Simple as that.

This keeps your inventory accurate and your costing up to speed, so you know exactly what you’ve used and what’s left on the shelf.

Step 3: Getting the Full Cost of Materials in Production

It’s not enough to just mark materials as used, you need to make sure every penny you spent gets counted. Business Central automatically brings in the real costs for every batch. So, if you bought copper at two different prices, you’ll see those differences in your product costs.

Example: Let’s say you bought copper twice: once at $4 per pound, and a second time at $4.50. If you use half from each batch, Business Central tracks the cost from each purchase – not just an average. That way, your numbers reflect the ups and downs of market prices.

This kind of detail helps you set prices, spot expensive trends, and keep tabs on your margins.

Step 4: Counting Labor and Machine Costs Along the Way

Materials are just the start. What about the cost of your team putting things together? Or the machines humming away on the shop floor? Business Central has you covered here, too.

Example: Maybe it takes two hours for someone to assemble parts at $20 per hour, plus a machine running for one hour at $50. In Business Central, you can set up work centers (machines) and routings (steps in your process) with their own costs. When you record the work, those costs get added to your production order automatically.

You can use timesheets or just enter the hours. The system rolls everything – labor, machines, and materials – into the final cost of your products.

Step 5: Adding Up Finished Goods with All the Costs Included

Finished making something? Time to “output” the goods. That’s Business Central jargon for putting your completed items into inventory as ready-to-sell. Business Central will adjust that finished good item’s unit cost to reflect the true cost of materials, labor, machine time to each item produced.

Example: If you made 100 widgets at a total cost of $4,500, each one goes into inventory at $45. Now you know what it really cost to make each widget, which is critical information when you set your selling price or check your profitability.

You’ll see detailed ledger entries for every batch you produce, so you always know what went into each item.

Step 6: Keeping Finished Goods Up to Date When Costs Change

Things don’t stay the same forever. Maybe the price of steel jumps, or you have to pay overtime. Business Central helps you keep your records fresh, adjusting for cost changes and showing any variances (the difference between what you expected and what actually happened). Business Central provides methods for you to cost your items in the manner that best suits your business. These methods can be set at the item level and different for each item or groups of items.

Here’s a quick rundown of the costing methods provided:

Standard Cost: You pick a set cost for an item, and any difference shows up as a variance. Handy for spotting inefficiencies or price jumps.
FIFO: “First in, first out.” You value items using the oldest purchase cost, which is great if prices swing a lot.
Average Cost: Business Central averages out your purchases, giving you a smoothed-over cost.
Specific Cost: Perfect for custom orders; each item gets its own cost based on how you made it.

Example: You set the standard cost of a widget at $40, but this month they cost $45 to produce. Business Central will note a $5 variance for each widget, and you can dig into why – maybe overtime, maybe pricier raw materials.

Why True Costing Matters in Business Central

Getting a handle on your actual costs does more than keep your accountant happy. Here’s what you really get:

Real-time insights: See what every product costs, anytime you want.
Smarter pricing: Set prices that make sense and protect your profits.
Better inventory valuation management: Know the true carrying cost of your inventory.
Useful analysis: Spot inefficiencies, find savings, and improve your process.
Easy compliance: Keep records for audits, regulations, and quality checks – without the headache.

Capturing your true manufacturing costs may sound tricky, but with Dynamics Business Central, it’s pretty straightforward. Follow these steps – track landed costs, manage your inventory, grab all expenses, and keep your records fresh – and you’ll always know what it really takes to make your products.

Curious to learn more or want some help setting things up? Reach out to a Business Central consultant (like me!) and discover just how much power a good ERP system can put in your hands. Accurate costing isn’t just nice to have – it’s critical for growing your business and staying ahead of the competition.