Introduction
Manufacturing costing has always been one of the most
technically demanding areas of a Business Central implementation. Get it right
and you have a reliable, real-time view of what it actually costs to make your
products. Get it wrong and your P&L tells a story that doesn't match your
shop floor.
In 2025, Microsoft has made meaningful improvements to
manufacturing costing across both Wave 1 and Wave 2 — which targeted fixes to
gaps that practitioners like me have been navigating in our implementations.
This post walks through what changed, what it means in practice, and what you
should do about it.
Quick reference — what's available and when
All four features covered in this post are already generally
available. Here's the version map so you know exactly what you need to be
running:
|
Feature |
Wave |
GA Date |
BC Version |
|
Non-inventory items in production cost |
Wave 1 2025 |
April 2025 |
BC 26 |
|
SKU-based standard costing |
Wave 1 2025 |
April 2025 |
BC 26 |
|
Power BI Manufacturing app improvements |
Wave 2 2025 |
October 2025 |
BC 27 |
|
Default consumption calculation method |
Wave 2 2025 |
October 2025 |
BC 27 |
If you are on BC 26 or later, the Wave 1 features are
available to you today — they just need to be enabled via Manufacturing Setup
toggles. If you are on BC 27 or later, all four are available.
Wave 1 (April 2025) — Two costing improvements that
matter
1. Non-inventory items now included in production costs
This is the most significant costing change in Wave 1.
Before this update, if your production BOM included
non-inventory items — consumables like lubricants, cleaning agents, packaging
materials, or process gases that you expense directly rather than stock — their
cost was posted as an expense but was never rolled into the cost of the
produced item. Your finished goods inventory value was understated. Your cost
of goods sold was inaccurate. And your BOM cost share reports gave you an
incomplete picture.
With the Wave 1 release, you can now include non-inventory
items in the cost of produced items for both actual and standard cost
scenarios. The cost appears as an extra value entry linked to the item ledger
entry of the Output type, keeping the audit trail clean.
To enable it: go to Manufacturing Setup and turn on
the Include Non-Inventory Items to Produced Items toggle. You will also
need to configure the corresponding balancing accounts before activating.
You can explore the effect of non-inventory items on the
cost of produced items on the BOM Cost Shares page, where the Rolled-up
Material Non-Inventory Cost and Single-level Material Non-Inventory Cost fields
are now available.
Practical tip: Before enabling this toggle, run a
cost impact analysis on your top 10 produced items by volume. Identify which
non-inventory components are in their BOMs and estimate the cost uplift. Brief
your finance team before activating — the first month's output postings will
look different from what they've seen before, and you want them prepared rather
than surprised.
Important note: These changes do not affect assembly
orders — non-inventory items can be consumed in assembly without impacting the
cost of the assembled item. This distinction matters if you have a mix of
production orders and assembly orders in your environment.
2. Standard costs now correctly derived from stock keeping units (SKUs)
The second Wave 1 costing improvement is more technical but
equally important for manufacturers who produce the same item in multiple
variants or at multiple locations with different cost structures.
The system now accurately calculates standard costs for
produced items with specific variants or locations by using stock keeping units
(SKUs). This improvement makes costs more precise when you assign production
bills of material and routes to SKUs.
Before this fix, if you had an SKU with a specific
production BOM or routing assigned — perhaps because one location uses
different equipment with different machine rates, or a variant requires
additional processing steps — the standard cost calculation did not reliably
pick up those SKU-specific BOMs and routings. It would fall back to the item
card, which meant your standard costs were based on the wrong structure.
To activate: go to Manufacturing Setup and enable the
Load SKU Cost on Manufacturing toggle. You can then use the Calc.
Production Std. Cost action on the Stock keeping Unit Card page to calculate
standard cost at the SKU level.
Practical tip: For sub-assemblies, the system uses
information from item cards rather than SKUs — this is an important limitation
to understand before restructuring your BOM hierarchy around SKU-level costing.
Also note that the standard cost worksheet does not currently support stock keeping units, so your standard cost roll-up process will need adjustment
if you previously relied on the worksheet for multi-location standard cost
updates.
Wave 2 (October 2025) — Manufacturing visibility through
Power BI
The costing improvements in Wave 2 are less about how costs
are calculated and more about how you see and analyze them. Microsoft
significantly improved reporting and analytics for manufacturing in the Power
BI Manufacturing app, with new KPIs, Gantt chart visuals, capacity unit
standardization, and enriched datasets for more comprehensive analysis.
What's new in the Power BI Manufacturing app
Production Order Routing Gantt: The Prod Order
Routing Gantt report visualizes routing line timelines as operation durations,
allowing manufacturing managers to monitor and analyze production tasks,
scheduling, and durations, with non-working days highlighted in red for
improved clarity. This is something manufacturers have wanted for a long time —
a visual production schedule that reflects actual routing data from BC without
needing a third-party scheduling tool.
Total Actual Cost KPI: A Total Actual Cost measure
has been added to the Prod. Order List Details, with sorting applied based on
the production order source number on the Actual Cost by Source No. visual.
This gives production managers and finance teams a single, trusted number for
actual production cost per order — directly in Power BI without exporting to
Excel.
Capacity unit standardization: All measures for
capacity have been refactored to show values in a universal unit of measure,
which you can define on the Manufacturing Setup page in the Show Capacity In
field. This sounds minor but is practically significant — previously, capacity
comparisons across work centers using different units of measure were
inconsistent and required manual normalization. Now the app handles it
automatically.
Consumption and capacity variance reports: The
updated app includes dedicated variance reports covering consumption variance,
capacity variance, and finished production order breakdown — all comparing
actual against expected and standard costs. The Finished Production Order
Breakdown highlights total actual cost with variances to expected and standard
cost, while the Consumption Variance Details matrix lists actual, expected, and
standard material costs with variances by production order.
Practical tip: If you are not yet using the Power BI
Manufacturing app, Wave 2 is a good moment to start. The Gantt chart and
variance reports alone justify the setup effort. When presenting to management,
lead with the Production Order Overview dashboard — it shows total actual
costs, production order status breakdown, and completion percentages in one
view that non-technical stakeholders can read without explanation.
Also, in Wave 2 — Default consumption calculation method
A smaller but practically useful change: manufacturers can
now set a default method for the Calculate Consumption report in Manufacturing
Setup, reducing repetitive setup and ensuring consistency when calculating
material consumption across production journals.
If your planners run the Calculate Consumption batch job
regularly and always use the same method, this eliminates a configuration step
they were doing manually every time. Small improvement, genuine daily time
saving.
Putting it together — what 2025 means for manufacturing
costing in BC
Across Wave 1 and Wave 2, the direction of Microsoft's
investment is clear: they are closing the gaps between what BC calculates and
what manufacturers actually need to see.
The non-inventory cost inclusion fixes a real accuracy
problem. The SKU-based standard costing fixes a structural limitation that
affected multi-location and multi-variant manufacturers specifically. The Power
BI improvements turn data that was already in BC into actionable visibility —
without requiring custom development.
None of these changes require a major implementation
project. They are toggle-driven, configuration-based improvements that a
well-prepared consultant can activate and test in a sandbox within a day. The
question is not whether they apply to your clients — most BC manufacturing
environments will benefit from at least one of them. The question is whether
you have reviewed your clients' setups with these changes in mind.
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