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 manufacturing company uses Dynamics 365 Finance and Operations. They need to track the cost of raw materials as they move through production. Which costing method should they use to ensure that inventory valuation reflects the most recent purchase prices?
LIFO
Why wrong: LIFO is not supported in Dynamics 365 Finance and Operations.
Weighted average
Why wrong: Weighted average averages costs over time.
FIFO
FIFO ensures ending inventory reflects recent purchase prices.
Standard cost
Why wrong: Standard cost uses predetermined costs, not actual recent prices.
Answer choices
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
FIFO
FIFO (First In, First Out) is the correct costing method because it assumes that the oldest inventory items are used first, leaving the most recently purchased items in stock. This ensures that the inventory valuation on the balance sheet reflects the most recent purchase prices, which aligns with the requirement to track costs as raw materials move through production in Dynamics 365 Finance and Operations.
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.
LIFO
Why it's wrong here
LIFO is not supported in Dynamics 365 Finance and Operations.
Weighted average
Why it's wrong here
Weighted average averages costs over time.
FIFO
Why this is correct
FIFO ensures ending inventory reflects recent purchase prices.
Related concept
Read the scenario before looking for a memorised answer.
Standard cost
Why it's wrong here
Standard cost uses predetermined costs, not actual recent prices.
Common exam traps
The trap here is that candidates often confuse FIFO with LIFO, thinking LIFO also reflects recent prices, but LIFO actually uses recent costs for consumption, leaving older costs in inventory valuation.
Detailed technical explanation
In Dynamics 365 Finance and Operations, FIFO is implemented through inventory model groups that track physical and financial updates per item. When a transaction occurs, the system uses the cost of the oldest inventory batch for cost of goods sold, while the newest batch remains in inventory, ensuring the valuation aligns with the latest purchase prices. A subtle behavior is that FIFO can be applied with or without marking, where marking allows specific receipt-to-issue linking, but without marking, the system automatically uses the oldest receipt cost.
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.
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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: FIFO — FIFO (First In, First Out) is the correct costing method because it assumes that the oldest inventory items are used first, leaving the most recently purchased items in stock. This ensures that the inventory valuation on the balance sheet reflects the most recent purchase prices, which aligns with the requirement to track costs as raw materials move through production in Dynamics 365 Finance and Operations.
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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