MB-920 Describe Dynamics 365 Finance Practice Question
A manufacturing company uses Dynamics 365 Finance. They need to track the cost of raw materials and finished goods across multiple production stages. Which costing method should they use?
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
✓
Standard costing
Correct: Standard costing uses predetermined costs for materials and labor, making it suitable for tracking costs across multiple production stages in manufacturing. Option A (Moving average) calculates cost based on average cost of goods. Option B (LIFO) is an inventory valuation method that assumes last units added are sold first, but it is not designed for predetermined cost tracking across production stages. Option C (FIFO) is another inventory valuation method that assumes oldest inventory is sold first.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Moving average
Why it's wrong here
Moving average calculates cost based on average cost of all inventory, which smooths out price fluctuations but does not provide precise cost tracking for multiple production stages.
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Last in, first out (LIFO)
Why it's wrong here
LIFO assumes the most recently acquired raw materials are used first, which does not align with the requirement to track actual cost flow across multiple production stages in a manufacturing environment; Dynamics 365 Finance uses standard costing or actual costing for multi-stage production, not LIFO. It is tempting because LIFO can reduce taxable income in periods of rising prices, and it would be correct for inventory valuation in a non-manufacturing context where cost layers are not tied to sequential production steps.
- ✗
First in, first out (FIFO)
Why it's wrong here
FIFO (First In, First Out) assumes oldest inventory is sold first, which can be used in manufacturing but does not offer the predetermined cost stability needed for multi-stage production cost tracking.
- ✓
Standard costing
Why this is correct
Standard costing is used to track expected costs in production.
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