Purpose:
This post explains how to allocate indirect costs—such as external services, quality inspections, or transportation—to a manufacturing process in Odoo. These costs may be tied to a single production order or distributed across an entire month’s worth of manufacturing. The ultimate goal is to ensure these additional expenses are reflected in the final cost of the manufactured product.
Context in Odoo:
In Odoo’s Manufacturing module, when using a costing method other than Standard Price (e.g., FIFO or Average), Odoo automatically creates a valuation layer for each inventory movement: purchases, manufacturing orders, and stock outs.
Beyond the base cost of components and work centers, you may need to include additional indirect costs. Odoo provides a tool for this: Landed Costs. Although traditionally used to allocate costs to incoming shipments, landed costs can also be applied to manufacturing orders. This enables a more realistic and complete product cost by incorporating service-related or process-based expenses.
Use case:
For this use case, we’ll consider the example of a pharmaceutical company. The company operates with a 2-step receipt process, 3-step manufacturing, and 2-step delivery flow. It uses Bills of Materials that include work center operations and applies the AVCO (Average Cost) method for product costing.
As a result, the following configurations are enabled:
- 2-step receipts
- 3-step manufacturing
- 2-step deliveries
- Bills of Materials with work center operations
- Product costing method: AVCO (Average Cost)
- Landed costs enabled
Example Flow:
Step-by-Step Application:
- Receive raw materials in two steps.
- First to a quarantine location, then to stock after quality check.
- Begin manufacturing (3 steps)
- Step 1: Materials are staged.
- Step 2: Production is executed via work center operations (mixing, drying, etc.)
- Step 3: Finished product moves to quarantine for post-production inspection.
- Add indirect costs (e.g., lab testing).
- Go to Inventory → Operations → Landed Costs
- Create a new record:
- Add cost items like “Lab Analysis Service” or “Compliance Certification Fee”.
- Apply the landed cost to the relevant manufacturing order.
- Validate.
- Finished product released to final stock.
- After quality control is passed, the finished goods move from quarantine to stock.
- The total product cost now reflects:
- Components.
- Work center operations.
- Indirect costs (added via landed costs).
Outcome
By doing this:
- The product cost includes all relevant expenses (raw materials, processing & lab tests).
- The inventory valuation is accurate.
- Financial reports like COGS, margin analysis, and stock valuation are fully aligned with reality.
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