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By: Faslu Rahman

Costing Methods In Odoo

In this blog, we are going to discuss different costing methods available in Odoo.
Odoo provides three methods.
1. Standard
2. Average
3. Real-time(FIFO, LIFO)

- You can configure this on Product category form.

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Let’s discuss how they differ from each other.

> Standard Costing:

- This method is very basic and easy. What we have to do is, just put the cost price on product master.
- The inventory valuation will not consider the amount for which you bought this item. It directly takes the cost price you provided on product master.

> Here, Cost of Product A is set as 7$

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> Making a purchase with unit cost 10$

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> Let’s check the inventory value of Product A

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Valuation says that value is 70$. No matter how much we spend on that item.

> Average Costing:

-In average costing method, cost of items in inventory is calculated based on the average cost of all available similar items in inventory.
- i.e cost of an item in inventory divided by the number of items available in stock. 

Here, I have created a new product category ‘Average’ with costing method ‘Average Cost’

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- Now I am going to create a new product ‘Product B’ under this category ‘Product B’

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- Now let’s try making some purchases of this item.

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- We bought 10 Kg of Product B for 100$. So, 10$/Kg
then,

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- Again we bought Product B 10 kg for 140$. So 14$/Kg
- Now we have 20Kg of Product B in our inventory. Let’s check the inventory value.

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- You can see Valuation says the Inventory value of Product B is 240$
Ie, 12$/Kg (240$/20Kg)
-Now you know what is the difference between Standard and Average costing methods.
Let’s go through the last one,

3. Real-Time Costing: 

- In real time inventory valuation method, Odoo keeps the track of the cost of each incoming and outgoing items. Real-time costing method works along with stock removal strategy.
Ie (FIFO, LIFO, FEFO). So we have to select one of them in product category form
Otherwise, Odoo will take FIFO as default.

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We can go with an example.

We are creating a new product ‘Product C’ with category ‘RealTime’. You can see the configuration of ‘Real-Time’ in above picture. Costing method is ‘First In First Out (FIFO)’ 
(In Odoo v11 Real-time is named as First In First Out) And force removal strategy is ‘First in First Out (FIFO)’

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- Let’s make two purchases for this product

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> We bought 10 Kg of Product C for 100$. So, 10$/Kg

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> Again we bought Product C 10 kg for 140$. So 14$/Kg

> Now, we have 20kg of Product C, let’s have a look at inventory valuation.

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> You can see Valuation says the Inventory value of Product C is 240$


> You may think that it is same as Average costing. But it is not


The computation is ;


10$*10kg = 100$

14$8*10kg=140$

Total = 240$


>
You may have noticed a small symbol next to the value.  You’ll get a more information about how that 240$ by clicking on that

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- So, if you sell an item with inventory costing method Real-Time and force removal strategy is FIFO, cost of goods sold will be updated with the cost of item come to the stock at first.

- In this case, the cost will be 10$.

- If the force removal strategy is LIFO system will take the cost of last came item.

- Here that is 14$.

This is how different costing method works in Odoo.




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