Standard cost is an inventory valuation method that is based on the standard cost principle, where inventory receipts and issues are valued using an item's active standard cost. Variances capture the differences arising between an item's standard cost and the actual cost of transactions. An item's standard costs are site specific and can be manually entered or calculated for manufactured items. An item's standard cost is initially created with a pending status, and must be activated for production costing and inventory valuation purposes.

Activating an item's standard cost (for an item held at standard cost) will result in revaluation of the item's inventory and work in process, where a cost revaluation variance captures the difference. Site-to-site transfers result in cost change variances when an item's standard costs differ between sites.

An inventory closing is not required for the standard cost valuation method, and manual marking does not apply with this version of Microsoft Dynamics AX as it did in previous versions.

An item's standard cost provides the basis for calculating purchase price variances at the time of purchase order receipt and invoice entry, and for calculating production variances at the time of ending a production order.

Production variances can optionally reflect the cost group breakdown and production variance types compared to a manufactured item's calculated cost, such as quantity or price variances related to material, labor and overhead.