The Costing Method field on an item tells Business Central how to value outbound movements: FIFO, LIFO, Specific, Average or Standard.
The costing method is a field on the item card that decides which cost Business Central applies when inventory leaves stock. Business Central supports FIFO, LIFO, Specific, Average and Standard. FIFO consumes the oldest cost first, Average uses a cost calculated over a period, Standard uses a fixed cost you maintain and books the difference against it as a variance, and Specific follows the exact serial or lot number that moved.
Search Items with Alt+Q, open an item card, and you find Costing Method on the costing information of the card next to Unit Cost, Standard Cost and Last Direct Cost. The options that affect items using Average, the average cost calculation type and the average cost period, are on the Inventory Setup page. The costing method is maintained on the item itself, so it belongs to item creation rather than to a later correction.
Item 1928-S uses FIFO. Two receipts exist: 10 pieces at CHF 100 on 05.01.2026 and 10 pieces at CHF 120 on 02.02.2026. A sale of 12 pieces on 10.02.2026 is valued at 10 times CHF 100 plus 2 times CHF 120, so CHF 1240, and the 8 pieces left in stock stay at CHF 120. With Average and a monthly average cost period, the same sale would be valued at the average cost of the period instead, and the cost of goods sold for February changes accordingly.
The costing method cannot be changed freely once the item has ledger entries; Business Central blocks the change. The workaround people invent, a new item number with the stock moved across, works but has to be planned because the history stays on the old number. Standard costing is the other trap: if standard costs are never revised, every purchase at a different price books a variance and those accounts grow until someone asks why the margin looks wrong. LIFO is also not accepted under IFRS and under several national rules, so check with your accountant before selecting it.
Decide the costing method by product family before you load the item master, and set it in the item template so new items inherit it instead of depending on whoever creates the card. If you import items with a configuration package, include the costing method column: a blank value falls back to the first option in the list and is easy to overlook across hundreds of rows.
Not directly. Business Central refuses the change when item ledger entries exist. The usual route is a new item with the correct method while the old stock is sold off or transferred, and it should be agreed with your accountant.
FIFO is the common default for trading and distribution. Standard suits manufacturing with stable cost rates, Specific fits serialised high value goods, and Average is used where purchase prices move often. LIFO is rarely usable in Europe.
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