Inventory Valuation Methods in Odoo#
Odoo supports three inventory valuation methods: Standard Price, Average Cost (AVCO), and First In First Out (FIFO). The method chosen determines how inventory is valued on the balance sheet and how cost of goods sold (COGS) is calculated.
Standard Price#
How it works: products are valued at a fixed, manually-set cost price. Price changes must be made manually.
Best for: stable-cost products, manufactured goods with known production cost.
Odoo behavior:
- Receipt: inventory valued at the standard cost (not the actual purchase price)
- Price difference (actual vs. standard): posted to a Purchase Price Difference account
- Delivery: COGS = standard cost × quantity (regardless of actual purchase price)
Pros: predictable costing, simple to manage
Cons: doesn't reflect actual market fluctuations; variance account needs monitoring
Average Cost (AVCO)#
How it works: the average cost is recalculated every time goods are received, weighted by existing stock.
Example:
- Stock: 50 units at $10 each (average cost = $10)
- Receive: 50 units at $12 each
- New average cost: (50×$10 + 50×$12) / 100 = $11
Best for: commodities, raw materials, products with volatile purchase prices.
Odoo behavior:
- Receipt: recalculates and updates the average cost
- Delivery: COGS = current average cost × quantity
Pros: reflects recent market conditions; simple to understand
Cons: cost history is blended - older purchases affect the cost of current sales
FIFO (First In First Out)#
How it works: Odoo tracks the cost of each specific receipt lot. When goods are shipped, the oldest receipts are "used" first.
Example:
- Lot 1: 100 units received at $10
- Lot 2: 100 units received at $12
- When 80 units are shipped: COGS = 80 × $10 = $800 (from Lot 1)
- When 150 units are shipped: COGS = 100 × $10 + 50 × $12 = $1,600
Best for: products where cost tracking matters by purchase batch (electronics, commodities, fashion).
Pros: most accurate - matches actual cost to actual delivery
Cons: more complex to manage; requires lot tracking for full benefit
Choosing the Right Method#
| Factor | Standard | AVCO | FIFO |
|---|---|---|---|
| Cost volatility | Low | Medium-High | High |
| Administrative effort | Low | Low | Medium |
| Accuracy | Lower | Medium | Highest |
| Regulatory requirement | Rarely | Sometimes | Sometimes |
Changing Valuation Method#
Product → General Information → Product Category → Costing Method
Changing the method on a product with existing stock triggers a revaluation - the current stock is restated at the new method's cost. This can create significant accounting entries.
Change only when the product has zero stock, or consult with your accountant before proceeding.