How to Track Manufacturing Costs in Odoo with Automated Journal Entries

Cost tracking is a vital component of managing manufacturing operations. Odoo provides a comprehensive system to track manufacturing costs and automatically record the corresponding accounting entries. This ensures that businesses understand the true cost of production and maintain accurate financial records. In this article, we’ll explore how to set up and use Odoo to track manufacturing costs with automated journal entries.

Key Components of Manufacturing Costing in Odoo

Odoo tracks manufacturing costs using a combination of product cost settings, bill of materials (BOM), work orders, and journal entries. There are three primary types of costs to account for:

1. Material Costs – Costs of raw materials consumed.
2. Labor Costs – Time-based costs incurred during production.
3. Overhead Costs – Indirect costs such as utilities or machine depreciation.

Step-by-Step: Setting Up Cost Tracking in Odoo

1. Configure Product Costs

• Go to Inventory > Products and open a product.
• Under the Accounting tab, set the Cost and choose the Costing Method (Standard, FIFO, or Average).
• Assign the appropriate Expense Account and Stock Valuation Account.

2. Define Bill of Materials (BOM)

• Go to Manufacturing > Bill of Materials and define the materials and operations required.
• Add raw materials with quantities and optionally define the routing and work centers.
• Ensure that the BOM reflects actual usage for accurate costing.

3. Set Up Work Centers and Routings

• Navigate to Manufacturing > Configuration > Work Centers.
• Define cost per hour for each work center (this will be used to calculate labor costs).
• Assign work centers to routing steps in the BOM.

4. Enable Automated Accounting for Manufacturing

• Go to Manufacturing > Configuration > Settings and enable Analytic Accounting and Automated Inventory Valuation (if using perpetual inventory).
• Ensure that the Manufacturing Journal is set to capture production-related entries.

During Production: Cost Accumulation and Journal Entries

When a Manufacturing Order (MO) is processed and marked as done:

• Raw Material Consumption: Stock moves deduct raw materials from inventory and record the material cost.
• Work Center Time Tracking: If time is logged on operations, labor costs are calculated based on work center rates.
• Finished Product Valuation: The system calculates the total cost of the finished product by summing material, labor, and overhead costs.

Automated Journal Entries

Once the MO is completed:

• Journal entries are created to reflect:
  • Debit: Finished Goods Inventory Account
  • Credit: Raw Material Inventory and/or Labor/Overhead Expense Accounts
• These entries ensure that inventory valuation and cost of goods sold (COGS) are accurately represented.

Cost Analysis and Reporting

Odoo offers several tools to analyze manufacturing costs:

• Cost Structure Reports: View the breakdown of costs per manufacturing order.
• Inventory Valuation Reports: Assess the value of stock before and after production.
• Analytic Accounting Reports: Track costs by department, product line, or work center.
• General Ledger: View automated journal entries linked to production.

Best Practices for Accurate Cost Tracking

• Regularly review BOMs and update them for changes in materials or operations.
• Calibrate work center rates to reflect actual labor and overhead costs.
• Use real-time operation tracking to improve labor cost accuracy.
• Reconcile production variances by comparing planned vs. actual costs.