This MB-920 practice question tests your understanding of describe the core capabilities of the finance and operations apps. Read the scenario carefully and evaluate each option against the stated constraints before committing to an answer. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
A company is implementing Dynamics 365 Finance and needs to track inventory costs using a standard costing method. Which inventory model should they select?
Standard cost
Standard costing uses predetermined standard costs.
LIFO
Why wrong: LIFO is not supported in Dynamics 365 Finance.
FIFO
Why wrong: FIFO is a cost flow assumption, not a costing method.
Weighted average
Why wrong: Weighted average is a cost calculation method, not costing.
Answer choices
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
Standard cost
Standard cost is the correct inventory model because it values inventory at predetermined costs, which aligns with the requirement to track inventory costs using a standard costing method. In Dynamics 365 Finance, the standard cost model uses predefined item costs and variances to capture differences between actual and standard costs, enabling cost control and analysis.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
For each option: why learners choose it and why it is or isn't the right answer here.
Standard cost
Why this is correct
Standard costing uses predetermined standard costs.
Related concept
Read the scenario before looking for a memorised answer.
LIFO
Why it's wrong here
LIFO is not supported in Dynamics 365 Finance.
FIFO
Why it's wrong here
FIFO is a cost flow assumption, not a costing method.
Weighted average
Why it's wrong here
Weighted average is a cost calculation method, not costing.
Common exam traps
The trap here is that candidates may confuse inventory valuation methods (FIFO, LIFO, weighted average) with the standard costing model, not realizing that standard cost is a distinct cost model in Dynamics 365 Finance that uses predetermined costs rather than actual cost flows.
Detailed technical explanation
In Dynamics 365 Finance, the standard cost model requires setting up cost groups, cost versions, and activation of item costs before transactions occur. Variances such as purchase price variance and production variance are automatically calculated and posted to specific ledger accounts, allowing detailed cost analysis. A real-world scenario is a manufacturing company that uses standard costs for budgeting and variance analysis to identify inefficiencies in production.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
A startup's cloud architect reviews their monthly bill and notices costs are higher than expected for a long-running batch job. Switching from on-demand instances to Reserved Instances — or using Spot/Preemptible VMs — can reduce compute costs by up to 72 %. Questions like this test whether you understand the tradeoffs between commitment, flexibility, and cost across cloud pricing models.
What to study next
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FAQ
Describe the core capabilities of the finance and operations apps — This question tests Describe the core capabilities of the finance and operations apps — Read the scenario before looking for a memorised answer..
The correct answer is: Standard cost — Standard cost is the correct inventory model because it values inventory at predetermined costs, which aligns with the requirement to track inventory costs using a standard costing method. In Dynamics 365 Finance, the standard cost model uses predefined item costs and variances to capture differences between actual and standard costs, enabling cost control and analysis.
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Read the scenario before looking for a memorised answer.
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Last reviewed: Jun 24, 2026
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