How to calculate standard costs in Business Central?
In this video, I want to show you how to calculate standard cost on an item, which is a production item.
This is what happens in the video
Calculating the standard cost on a production item in Business Central means rolling up the costs from the item’s bill of materials and routing. You do this from the item card by choosing Calculate Standard Cost under the production functions. You can calculate the top level only, or all levels of the item’s component hierarchy.
Before you calculate, the standard cost on a new production item is zero. After calculating, Business Central updates the field with the rolled-up cost based on the components in the BOM and the operations in the routing.
Setting up a production item with a BOM and routing
To calculate standard cost, you first need a production item with the right structure in place. In this example we use a new item number called City Bike Alu Rim. The item is built with a new production BOM and an existing routing.
The BOM defines which components go into the item, and the routing defines the operations needed to produce it. Together they give Business Central the information it needs to calculate what the finished item actually costs.
Calculating standard cost on a production item
When you first set up the item, the standard cost is zero because no calculation has been run yet. To calculate it, open the item and go to the Navigate tab. From there you can review the BOM, and because this is a production item, you find the calculation under the production functions.
Choose Calculate Standard Cost. You now get two options:
- Top level calculates only one level down, using the standard cost already set on the immediate components.
- All levels calculates the complete hierarchy of the item, rolling up costs from every level below.
Pick the option that matches what you need and press OK. Business Central updates the standard cost on the item. In this example, the item ends up with a standard cost of 1,729.
Q&A
How do you calculate the standard cost on a production item in Business Central?
Open the item, go to the Navigate tab, and choose Calculate Standard Cost under the production functions. Select either top level or all levels, then press OK. Business Central rolls up the costs from the BOM and routing and updates the standard cost field on the item.
What is the difference between calculating top level and all levels?
Top level calculates only one level down, using the standard cost already set on the immediate components. All levels calculates the complete hierarchy of the item, rolling up costs from every level below.
Why is the standard cost zero on a new production item?
The standard cost stays at zero until you run the calculation. Once you choose Calculate Standard Cost, Business Central fills in the value based on the components in the BOM and the operations in the routing.
What does Business Central use to calculate the standard cost of a production item?
It uses the item’s bill of materials, which defines the components, and the routing, which defines the production operations. Together these determine the rolled-up cost of the finished item.