Cost Accounting
Cost accounting drives profitability through cost analysis, control, and strategic financial decisions.
Master Your Costs, Maximize Profits
Cost Accounting with Dynamics 365 Business Central
Are you truly confident in your pricing? Do you know where your profits are coming from and where costs are eroding them? Cost Accounting is the key to understanding the true cost of doing business. It’s more than just tracking expenses; it’s about analyzing, controlling, and optimizing your costs to make smarter decisions and boost your bottom line.
For businesses of all sizes, especially in today’s competitive market, effective Cost Accounting is essential for:
Accurate Pricing
Setting prices that are competitive yet profitable.
Profitability Analysis
Identifying your most profitable products, services, and customer segments.
Cost Control
Pinpointing areas of overspending and waste to improve efficiency.
Informed Decision-Making
Making strategic decisions about production, investments, and resource allocation based on solid cost data.
Budgeting and Planning
Creating realistic budgets and forecasts based on accurate cost insights.
Key Techniques for Effective Cost Control
To truly master your costs, you need to implement proven techniques. Here are three fundamental methods, all of which are powerfully supported by Dynamics 365 Business Central (D365 BC):
Budgetary Control
Budgetary control is like creating a financial roadmap for your business. You set budgets for different areas (like departments, projects, or product lines) and then actively compare your actual spending against these budgets. This helps you identify variances – are you over or under budget? And why? D365 BC makes it easy to create, track, and analyze budgets, providing alerts when spending deviates from planned levels.
Benefit: Stay on track financially, prevent overspending, and achieve your financial goals.
Standard Costing
Standard costing is about setting “benchmark” costs for your products or services – what should they cost to produce or deliver efficiently? You then compare your actual costs to these standards. This reveals inefficiencies in your processes. Are your materials costing more than planned? Is your labor more expensive than expected? D365 BC allows you to establish standard costs for items and services, track variances, and analyze the reasons behind cost deviations.
Benefit: Identify and eliminate cost inefficiencies in production and operations, improve process optimization.
Inventory Control
Inventory – whether raw materials, work-in-progress, or finished goods – represents tied-up capital and storage costs. Effective inventory control means managing your stock levels efficiently. You want to avoid both stockouts (losing sales because you’re out of product) and overstocking (tying up too much money in unsold inventory). D365 BC offers robust inventory management tools to track stock levels, optimize reorder points, manage warehouse operations, and reduce inventory carrying costs.
Benefit: Reduced inventory costs, minimized stockouts, improved cash flow through optimized stock levels.
D365 Business Central
Your Powerful Cost Accounting Toolkit
Dynamics 365 Business Central (D365 BC) isn’t just an accounting system; it’s a comprehensive business management solution with powerful cost accounting capabilities built-in. Here are some of the key D365 BC tools that empower effective cost accounting:
Chart of Accounts & Dimensions
Structure your Chart of Accounts and use Dimensions (like departments, cost centers, projects) to categorize and analyze costs in detail. Gain granular insights into where your money is being spent.
Benefit
Detailed cost breakdown, flexible reporting by various business segments.
Budgets
Create and manage budgets at various levels (overall business, department, project, etc.). Track budget vs. actual performance in real-time and identify variances easily.
Benefit
Proactive budget management, early detection of budget deviations.
Standard Costs (Cost Accounting Module)
Define standard costs for items and services, track actual costs, and analyze variances (material, labor, overhead). Identify areas where actual costs deviate from planned standards.
Benefit
Standardized cost analysis, pinpointing cost inefficiencies, performance evaluation.
Item Costs & Costing Methods
Manage different costing methods (FIFO, Average Cost, Standard Cost, Specific Identification) and accurately calculate item costs, including direct and indirect costs.
Benefit
Accurate inventory valuation, precise cost of goods sold calculations.
Job Costing (Projects Module)
Track costs associated with specific projects or jobs, including labor, materials, and expenses. Monitor project profitability and control project budgets.
Benefit
Accurate project cost tracking, improved project profitability analysis.
Warehouse Management (Inventory Control Integration)
Optimize warehouse operations and inventory control, directly impacting inventory carrying costs and efficiency. Track inventory levels, manage stock movements, and optimize warehouse processes.
Benefit
Efficient inventory management, reduced warehousing costs, improved order fulfillment accuracy.
Reporting & Business Intelligence (Power BI Integration)
Generate insightful reports and dashboards to analyze cost data, track key metrics, and visualize cost trends. Use Power BI for advanced analysis and custom reporting.
Benefit
Data-driven cost insights, clear visualization of cost performance, enhanced decision support.
Pricing Your Product with D365 BC Cost Accounting Data
Let’s say you are a company that manufactures custom furniture. How can D365 BC help you determine the right price for a new custom-designed chair?
Here’s how D365 BC’s Cost Accounting features can guide you:
Bill of Materials (BOM) in D365 BC
You define the BOM for the chair, outlining all materials (wood, fabric, screws, etc.) and their standard costs from your item master. D365 BC calculates the total standard material cost based on quantities and unit costs.
Routing & Work Centers in D365 BC
You define the manufacturing steps (routing) and the work centers involved (carpentry, upholstery, finishing). You assign standard labor costs per work center based on labor rates and estimated time. D365 BC calculates the standard labor cost for the chair.
Overhead Cost Allocation in D365 BC
You set up overhead allocation rules in D365 BC to distribute indirect costs (factory rent, utilities, equipment depreciation) to products based on allocation keys (e.g., machine hours, direct labor hours). D365 BC allocates a portion of overhead costs to the chair.
D365 BC Calculates Total Standard Cost
D365 BC automatically sums up the standard material cost, standard labor cost, and allocated overhead cost to arrive at the total standard cost for manufacturing the chair.
Profit Margin & Pricing Strategy
Using this accurate standard cost from D365 BC, you can now confidently apply your desired profit margin to determine a competitive and profitable selling price. You can also analyze different pricing strategies based on varying profit margins and see how they impact your potential revenue and profitability, all informed by your solid cost data in D365 BC.
Ongoing Cost Monitoring and Adjustment
As you produce chairs, D365 BC tracks your actual material costs, labor costs, and overhead. You can compare these actuals to your standards and identify variances. If material prices increase or production becomes less efficient, D365 BC will highlight these cost deviations, allowing you to re-evaluate your standard costs and adjust your pricing as needed to maintain profitability.
Take Control of Your Costs with VAV Consultants & D365 BC
Ready to take control of your costs and unlock greater profitability? Schedule a free Cost Accounting consultation with our D365 BC experts. We’ll discuss your specific business needs and show you how D365 BC can empower you to master your costs and drive financial success. Schedule a Free Cost Accounting Consultation with our D365 BC Experts