MB-920 Describe Dynamics 365 Finance Practice Question
A manufacturing company uses Dynamics 365 Finance and Supply Chain Management. The finance department wants to allocate overhead costs to production orders based on machine hours. Which costing method should they configure?
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Absorption costing
Absorption costing is correct because in Dynamics 365 Finance, it allocates overhead costs to production orders using predetermined rates based on activity drivers like machine hours. Variable costing (A) only includes variable costs, ignoring fixed overhead. Standard costing (B) uses standard rates for cost elements but does not specifically allocate overhead based on machine hours. Job costing (C) tracks costs per individual job or order, not overhead allocation by machine hours.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Variable costing
Why it's wrong here
Variable costing only includes variable costs, not overhead allocation based on machine hours.
- ✗
Standard costing
Why it's wrong here
Standard costing uses standard rates but is not specifically for overhead allocation.
- ✗
Job costing
Why it's wrong here
Job costing tracks costs per job but does not allocate overhead based on machine hours.
- ✓
Absorption costing
Why this is correct
Absorption costing allocates overhead using predetermined rates based on machine hours.
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