Configuring Product Costing Methods in Odoo18

Product costing is an important aspect of a business which has an impact on the inventory value as well as the financial aspect so as to achieve precise cost tracking data for profitability analysis. In Odoo, Inventory Valuation refers to how you value your stock. Inventory valuation mainly depends on the Product Costing Method set up in the Product Category. and there are 3 Product costing methods in Odoo18 which can be used to value your goods.

• Standard Price – In Standard Price, any product will be valued at the cost that you defined manually on the product form.
• Average Cost – In AVCO (Average Cost), each product has the same value and this value is the average purchase cost of the product.
• FIFO – In FIFO (First In First Out), the products are valued at their purchase cost.

In this blog we will look into the details of the 3 main types of costing methods used in Odoo18.

In odoo, the costing methods are configured under the Product Categories view. To set a costing method on a product category , go through the following steps

Menu → Sales →  Configuration → Product Categories

As shown in the above image, we have created separate product categories for different costing methods so as to have a better understanding of the Product costing methods in Odoo18.

Standard Price Costing

For the Standard Price Costing method, set the costing method as Standard Price of the product category as shown in the image below.

The next step is to create a product with the above product category. In order to create a product, go through the following steps

Menu → Sales → Products

As shown in the above image , the product category as All, sales price is set as 10 € and cost is set as 100 €.

We can now create a Purchase Order using this product and verify the costing.

To create a Purchase Order, , go through the following steps

Menu → Purchase → Orders → Request for Quotation

As shown in the above image, we have selected the Standard Price Product in the lines and set the quantity as 10 and unit price as 90€. Confirm the RFQ, validate the inventory transfer, create the bill and complete the payment process.

Now let us examine the inventory valuation for the product Standard Price Product once the purchase order has been verified and confirmed.

Standard Price Product

The product Standard Price Product cost us 90€, but in the inventory valuation, the value comes up as 100€.

Now let us check the cost of the product Standard Price Product.

As seen in the above image, there is no change in the cost price of the product.

In the Standard Price Costing Method, the inventory valuation ignores the amount paid for the product. Instead, it only considers the cost price configured in the product master.

Average Cost (AVCO) Costing Method

For the Average Cost Costing method, set the costing method as Average Cost (AVCO) of the product category as shown in the image below.

The next step is to create a product with the above product category. In order to create a product, go through the following steps

Menu → Sales → Products

AVCO Products

The product category is All/AVCO, with the sales price set at 1€ and the cost at 0€.

We can now create a Purchase Order using this product and verify the costing.

To create a Purchase Order, go through the following steps

Menu → Purchase → Orders → Request for Quotation

As shown in the above image, we have selected the AVCO Product in the lines and set the quantity as 10 and unit price as 90€. Confirm the RFQ, validate the inventory transfer, create the bill and complete the payment process.

Now let us create another Purchase Order with the same product but with a different vendor and unit price.

As shown in the above image, we have selected the AVCO Product in the lines and set the quantity as 20 and unit price as 95€. Confirm the RFQ, validate the inventory transfer, create the bill and complete the payment process.

Now let us examine the inventory valuation for the product AVCO Product once both the purchase orders have been verified and confirmed.

We bought 10 units of the product AVCO Product with a unit price of 90€ in the first Purchase Order with the inventory valuation of 900€. In the second Purchase Order, the unit price was 95€ for 20 units and the valuation is 1900€.

A particular formula to calculate the average costing method.

To find the total cost of the purchases, multiply the quantity of the first purchase by its cost, do the same for the second purchase, and then divide by the total quantity purchased.

Now, let’s see how much the AVCO Product costs.

AVCO Product costs

As seen in the above image, the product’s cost price becomes 93.33€ using the above-mentioned formula.

((1090) + (2095)) / 30 = 93.33

Therefore, as seen in the above example, in AVCO Costing Method, the inventory valuation by dividing the price of an item in stock by the quantity of products in stock and the cost based on the quantity ordered and the purchase order unit price.

First In First Out (FIFO)

For the First In First Out (FIFO) Costing method, set the costing method as First In First Out (FIFO) of the product category as shown in the image below.

Create a Product With the Product Category

The next step is to create a product with the above product category. In order to create a product, go through the following steps

Menu → Sales → Products

As indicated in the above image, the product as All/FIFO, with a sales price of 400€ and no cost assigned.

We can now create a Purchase Order using this product and verify the costing.

To create a Purchase Order, , go through the following steps

Menu → Purchase →  Orders → Request for Quotation

As shown in the above image, we have selected the FIFO Product in the lines and set the quantity as 2 and unit price as 350€. Confirm the RFQ, validate the inventory transfer,  create the bill and complete the payment process.

Tracking FIFO Cost Updates in Odoo18

Now let us check the unit cost of the product FIFO Product. Now see the updated cost

And Now let us create another Purchase Order with the same product but with a different vendor and unit price.

As shown in the above image, we have selected the FIFO Product in the lines and set the quantity as 5 and unit price as 450€. Confirm the RFQ, validate the inventory transfer,  create the bill and complete the payment process.

Now let us examine the inventory valuation for the product FIFO Product once both the purchase orders have been verified and confirmed.

Now let us create a Sale Order for the 2 units of the product FIFO Product with a unit price of 400€.

Confirm the Quotation, validate the inventory transfer,  create the invoice and complete the payment process.

Now let us check the cost of the product FIFO Product.

Therefore, as seen in the above example, in FIFO Costing Method, the inventory valuation of the product according to the last item in the stock. This means that until the product out of the stock by any method, its cost price remains the same.

Thus, by choosing the desired product costing methods in Odoo18, businesses can achieve the desired profitability.

Choosing the best product costing method is critical for precise inventory valuation and streamlined operations, ensuring accurate financial reporting and efficient resource allocation. With Odoo 18’s flexibility offering Standard Price, Average Cost (AVCO), and First In First Out (FIFO) you can align your costing strategy with your business goals and ensure precise financial tracking.

Need help setting up your product costing methods in Odoo18 Talk to our experts now.