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[IMP] inventory: costing chart

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Signed-off-by: Felicia Kuan (feku) <feku@odoo.com>
Co-authored-by: kekiss <karaekiss@yahoo.com>
Co-authored-by: ksc-odoo <73958186+ksc-odoo@users.noreply.github.com>
Co-authored-by: Sam Lieber (sali) <36018073+samueljlieber@users.noreply.github.com>
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content/applications/inventory_and_mrp/inventory/warehouses_storage/inventory_valuation/inventory_valuation_config.rst
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@ -107,27 +107,184 @@ Go to :menuselection:`Inventory app --> Configuration --> Product Categories` an
product category. In the :guilabel:`Inventory Valuation` section, select the appropriate
:guilabel:`Costing Method`:
- :guilabel:`Standard Price`: the default costing method in Odoo. The cost of the product is
manually defined on the product form, and this cost is used to compute the valuation. Even if the
purchase price on a purchase order differs, the valuation will still use the cost defined on the
product form.
- :guilabel:`Average Cost (AVCO)`: calculates the valuation of a product based on the average cost
of that product, divided by the total number of available stock on-hand. With this costing method,
inventory valuation is *dynamic*, and constantly adjusts based on the purchase price of products.
.. note::
When choosing :guilabel:`Average Cost (AVCO)` as the :guilabel:`Costing Method`, changing the
numerical value in the :guilabel:`Cost` field for products in the respective product category
creates a new record in the *Inventory Valuation* report to adjust the value of the product.
The :guilabel:`Cost` amount will then automatically update based on the average purchase price
both of inventory on hand and the costs accumulated from validated purchase orders.
.. tabs::
- :guilabel:`First In First Out (FIFO)`: tracks the costs of incoming and outgoing items in
real-time and uses the real price of the products to change the valuation. The oldest purchase
price is used as the cost for the next good sold until an entire lot of that product is sold. When
the next inventory lot moves up in the queue, an updated product cost is used based on the
valuation of that specific lot. This method is arguably the most accurate inventory valuation
method for a variety of reasons, however, it is highly sensitive to input data and human error.
.. tab:: Standard Price
The default costing method in Odoo. The cost of the product is manually defined on the product
form, and this cost is used to compute the valuation. Even if the purchase price on a purchase
order differs, the valuation is the cost defined on the product form.
.. list-table::
:header-rows: 1
:stub-columns: 1
* - Operation
- Unit Cost
- Qty On Hand
- Incoming Value
- Inventory Value
* -
- $10
- 0
-
- $0
* - Receive 8 products for $10/unit
- $10
- 8
- 8 * $10
- $80
* - Receive 4 products for $16/unit
- $10
- 12
- 4 * $10
- $120
* - Deliver 10 products
- $10
- 2
- -10 * $10
- $20
* - Receive 2 products for $9/unit
- $10
- 4
- 2 * $10
- $40
.. tab:: Average Cost (AVCO)
Calculates the valuation of a product based on the average cost of that product, divided by
the total number of available stock on-hand. With this costing method, inventory valuation is
*dynamic*, and constantly adjusts based on the purchase price of products.
.. list-table::
:header-rows: 1
:stub-columns: 1
* - Operation
- Unit Cost
- Qty On Hand
- Incoming Value
- Inventory Value
* -
- $0
- 0
-
- $0
* - Receive 8 products for $10/unit
- $10
- 8
- 8 * $10
- $80
* - Receive 4 products for $16/unit
- $12
- 12
- 4 * $16
- $144
* - Deliver 10 products
- $12
- 2
- -10 * $12
- $24
* - Receive 2 products for $6/unit
- $9
- 4
- 2 * $6
- $36
How are unit cost and inventory value calculated at each step?
- When receiving four products for $16 each:
- Inventory value is calculated by adding the previous inventory value with the incoming
value: :math:`$80 + (4 * $16) = $144`.
- Unit cost is calculated by dividing the inventory value by the quantity on-hand:
:math:`$144 / 12 = $12`.
- When delivering ten products, the average unit cost is used to calculate the inventory
value, regardless of the purchase price of the product. Therefore, inventory value is
:math:`$144 + (-10 * $12) = $24`.
- Receive two products for $6 each:
- Inventory value: :math:`$24 + (2 * $6) = $36`
- Unit cost: :math:`$36 / 4 = $9`
.. note::
When choosing :guilabel:`Average Cost (AVCO)` as the :guilabel:`Costing Method`, changing
the numerical value in the *Cost* field for products in the respective product category
creates a new record in the *Inventory Valuation* report to adjust the value of the
product. The *Cost* amount is then automatically updated, based on the average purchase
price of both the inventory on-hand and the costs accumulated from validated purchase
orders.
.. tab:: First In First Out (FIFO)
Tracks the costs of incoming and outgoing items in real-time, and uses the real price of the
products to change the valuation. The oldest purchase price is used as the cost for the next
good sold, until an entire lot of that product is sold. When the next inventory lot moves up
in the queue, an updated product cost is used based on the valuation of that specific lot.
This method is arguably the most accurate inventory valuation method for a variety of reasons,
but it is highly sensitive to input data and human error.
.. list-table::
:header-rows: 1
:stub-columns: 1
* - Operation
- Unit Cost
- Qty On Hand
- Incoming Value
- Inventory Value
* -
- $0
- 0
-
- $0
* - Receive 8 products for $10/unit
- $10
- 8
- 8 * $10
- $80
* - Receive 4 products for $16/unit
- $12
- 12
- 4 * $16
- $144
* - Deliver 10 products
- $16
- 2
- | -8 * $10
| -2 * $16
- $32
* - Receive 2 products for $6/unit
- $11
- 4
- 2 * $6
- $44
How are unit cost and inventory value calculated at each step?
- When receiving four products for $16 each:
- Inventory value is calculated by adding the previous inventory value to the incoming
value: :math:`$80 + (4 * $16) = $144`.
- Unit cost is calculated by dividing the inventory value by the quantity on-hand:
:math:`$144 / 12 = $12`.
- When delivering ten products, eight units were purchased for $10, and two units were
purchased for $16.
- First, the incoming value is calculated by multiplying the on-hand quantity by the
purchased price: :math:`(-8 * $10) + (-2 * $16) = -112`.
- The inventory value is calculated by subtracting the incoming value from the previous
inventory value: :math:`$144 - $112 = $32`.
- Unit cost is calculated by dividing the inventory value by the remaining quantity:
:math:`$32 / 2 = $16`.
- When receiving two products for $6, inventory value is :math:`$32 + $12 = $44`. Unit cost is
:math:`$44 / 4 = $11`.
.. warning::
Changing the costing method greatly impacts inventory valuation. It is highly recommended to