Costing Methods and Inventory Valuation in Odoo13
Odoo is one of the most efficient open source ERP management software. Inventory, in any business, refers to any product held in stock by the company. This includes the finished goods which are ready for sale, goods which are ready in production and raw materials that’ll be used further for the production of goods. Inventory is considered as an asset in the business.
Inventory management in Odoo is a well-organized approach to manage, plan and organize inventory operations for a business. This includes all the financial and logistics operation control in one place. This helps in increasing efficiency, enabling business expansion and following cost savings methods.
In this blog, we’ll be considering a very vital aspect of patronage called the Inventory valuation in Odoo. Inventory valuation means value of the stock. Inventory valuation allows a business to estimate a monetary value for items that are included in the inventory.
Inventory valuation helps in calculating the gross income of a company as well as estimating the financial position of the company.
Inventory Valuation Refers to Two Main Choices:
(A) The Cost Method you use to value of your goods. There are three options available in the costing method as defined in the product category.
• Standard Price
• Avergae Price
1. Standard Price- The standard price method doesn’t affect the cost price of the product according to the purchase or any other inventory adjustments. This category of product's price is changed in a specific period.
✔ How to configure the new category with the standard price.
(1.2) Create a product with the Set Standard Price Category.
(1.3) Let’s make the purchase order with this product and receive in stock and then check the inventory value of this product.
(1.4) You can see the inventory value with this category product, here we have set the cost price is 80$ and we purchase the 10 qty with 250$(25$ per one unit) So the Standard costing method is not dynamically changed we need to change manually.
(2.1) Create the product with FIFO Category selectable.
(2.2) Now we create the purchase order with the same product and purchase with different valuation.
(2.3) The cost price of the product doesn't get updated where no outgoing of the product is done.
(2.4) We sell the product with 7 qty with 20 prices and after once shipment did check the product cost evaluation.
(2.5) Check the on the product the cost price is updated with the 11.0
3. Average Price- In the average price costing method, it alters the cost price according to the 'total quantity shipped' and 'the purchase price'. The cost is determined by the total average price according to the quantity.
(3.1) Now we’ll create a product with avg. category selectable and we set the initial cost is set to 0.
(3.2) Now we create the purchase order with 10 qty of 12$.
(3.3) Go to Product and check the updated cost of the product.
(3.4) Again, create the purchase order with the same avg. category of product with different valuation and then check on product updated cost.
(B) The way you record this value into your accounting books (manually or automatically).
1. Manual: when a product registers or moves the account entries of its inventory won’t be posted automatically.
2. Automated: Here the accounting entries will be posted automatically.
(a) Now we check to create the two categories one with automating inventory valuation and one with manual valuation.
(b) Creating the two products Apple with automated inventory valuation and orange with manual inventory valuation.
(c) Now creating the Sale order with these two different categories and delivery of product 'Apple' will be automatically generated for the inventory valuation but for the 'orange' case there won’t be automatically generated entries.
(d) To check both, categorize product entries Goto Invoicing > Accounting > Journal Entries.