How product costs are computed and monitored in inventory management is determined by costing methods in Odoo 18. FIFO, AVCO, and Standard Costing are the main approaches available. These techniques have an impact on inventory value and financial accounting to guarantee precise cost tracking for profitability analysis.
* First In, First Out: Costs are based on the oldest stock acquired
* Average Cost: Costs are based on the average of all purchases
* Standard Costing: Fixed cost manually specified for products
Let's now examine how Odoo 18's various costing techniques operate. The Product Category contains the casting techniques. Select the Product Category from the Configuration menu when you access the Odoo 18 sales module.
: Configuration > Product Category
1. Standard Price Costing
The normal price is easy to comprehend. The buy order price has no effect on standard pricing. In other words, it simply utilizes the cost field; delivery and purchase receipts have no bearing on the cost. The cost price is regularly updated by hand in the case of standard price product costing. The price of the product usually varies once a year or after a specific period of time.
So the product category chosen is All, and the Costing Method set as Standard Price as shown in the screenshot below.
As illustrated below, let's develop a new product and use the Standard pricing as the costing method. The product name is “Table” and it costs $100. The Product category chosen is All here.
In order to verify the normal pricing approach, let's save it and make a purchase order for the goods. The vendor is Abigail Peterson and product Table chosen in the Product lines. 10 quantities with a cost of 90 dollars are purchased.
Confirm and validate the receipt to get the product. Then, to complete the procedure, create a bill and complete the payment process.
Let's examine the inventory valuation produced for the Table product once the purchase order has been verified and confirmed.
The product Table cost us $90, but when reviewing the Inventory Valuation report, the user discovered that, for one quantity, the value contributed was $100 instead of $90.
Now let's check the product Table again to view the cost. The onhand quantity of the product is increased to 10, but there is no change on the cost.
Therefore, the product's standard price is taken into account for the Standard Costing Method. The amount you paid for this item will not be factored into the inventory valuation. It immediately uses the price you entered on the product master.
2. Average Costing Method
Using the average cost of all comparable, readily available things in inventory, the average costing approach determines the cost of inventory items. This is calculated by dividing the price of an item in stock by the quantity of products in stock. The cost is adjusted based on the quantity ordered and the purchase order payment each time the product is bought and received. Once the products leave the warehouse, though, the price remains the same.
Check the Product Category first. The costing method is set as the Average Costing Method.
As illustrated below, let's design a product with a product category set to Average costing. The product name is Chair here and does not set any cost for the product.
To verify the procedure, let's make a purchase order for ten chairs at a unit cost of $90 and validate the order. Aka Foster is the merchant in this case. Construct a bill and finish the payment.
Created order for the chair, the same product. Deco Addicts has been selected as the vendor this time. This time, the user paid 95 dollars a unit for 20 units.
Let's examine the inventory valuation generated for the orders from the inventory module after verifying the receipts.
We bought 10 units of a Chair with a $90 purchase price in the first purchase order. In that scenario, the unit cost is $90 and the stock is worth $900. Although the buying price has been increased to $95, the second purchase order contains 20 quantities. Total Value is $1900.
Average Costing Method is calculated by using the formula
(First purchasing quantity * Purchase cost) + (Second purchasing quantity * Purchase cost)/Total purchased quantity
Check the product form and check the product cost.
The stock values for the first and second purchase orders 900+1900 add up to $2800, which is the stock value for the unit cost. Because the total quantity is 30 and the stock value is $2800. So the product cost is $93.34.
3. First In First Out (FIFO)
Using this method, the cost price of a product is modified according to the last item in stock. Costing Methods like FIFO, therefore, affect the pricing. So choose the Product Category again and set the Costing Method as First In First Out.
Let's design a product with a FIFO costing mechanism and a FIFO removal strategy in order to carry out this process. The product is named Drawer, and the product is tracked by a Unique Serial Number. There is no cost set for the product.
Let's now generate a purchase order for two quantities of the goods at a unit price of $350 in order to test how this costing approach operates. The chosen vendor is Azure Interior.
Check the unit cost of the product Drawer. Here the purchase cost is automatically updated as $350.
Let's now draft a new buyer order for five units of the goods, each costing $450. Verify the receipt and settle the purchase invoice.
Verify and confirm the transfers. After that, as indicated below, let's examine the inventory valuation of the transfer that was generated by the inventory module.
Let's now generate a selling order for two quantities with a unit price of $400, as indicated below, to see how this costing approach might operate.
Verify and confirm the sale order. If we examine the product after the transfer has been validated, the product cost will be changed to $450, as indicated below.
Therefore, until the product is taken out of stock using one of the removal techniques, its cost price stays the same.
This is how Odoo 18's Costing technique operates.
To read more about What are the Different Types of Costing Methods in Odoo 16, refer to our blog What are the Different Types of Costing Methods in Odoo 16.