product.product.standard_price should not be called "Cost price"

[clonedagain]

In Odoo the cost price and the stock valuation of products has always been squashed into the same field, but in many companies these are very different concepts.
But this is confusing to a lot of users in industrial companies because they need to treat the two concepts with different methods.
So I suggest the field should be renamed to "Inventory Value", to make it quite clear this is the stock valuation price and not the cost price.
This would also let the community cleanly introduce supporting modules to manage the actual cost price.
This is not nitpicking for once, it's a very real usability issue for users who can't easily understand what the field does.

"Inventory Value" is the cost used in the accounting ie. for the yearly inventory valuation: it is computed using various methods depending on the business (average purchase price, replenishment price, raw materials with or without human resources, market value...).
"Cost Price" on the other hand is the cost that we have to support in order to produce the goods. It may or may not be equal to the valuation. Unless I'm mistaken, it typically contains various extra costs (investments, commercial costs, ...) which are not included in the valuation, because they are already preset in the accounting journals in other forms.

[clonedagain]

@anajuaristi @pedrobaeza @jgrandguillaume @yvaucher @gurneyalex do you agree with this request please?

[rvalyi]

and I would add at least @gdgellatly @nhomar @blaggacao who know these costing stuff to the thread.

[gdgellatly]

Hi,

Thanks for the heads up. In English accounting nomenclature, and in IFRS, with no context provided the value used for inventory valuation is "Cost Price". It just is. There is no APICS dictionary entry for "cost price" although there is for "average cost price" and "standard cost price" although in later definitions it does refer to just "cost price".

The term Inventory Value is highly confusing, in English accounting vernacular, and in APICS, it refers to 4 things depending on context, none of which are the cost price. It is either the aggregate value of all inventory, or the aggregate value of selected inventory based on either market or cost price. In fact while APICS does not define cost price in its dictionary, it specifically refers to cost price here. Moreover the term inventory throughout APICS is an aggregate term. Inventory Costs refers to holding costs of all inventory for example, never a single identifiable item.

I understand the issue. I don't disagree that organisations often use different costs for different decisions. But I don't agree the term Cost Price is incorrect.

In my life I have been subjected to Tagged Cost (an inflated cost to normalise costs against non contributed rebates), Supplier Buy Price, Average Cost, Last Cost, Market Rate, Hedged Cost, Weighted Standard Cost, Standard Cost, Actual Cost and various permutations of these and on the same systems. I've also had the displeasure of an activity based costing environment. But regardless of all of that, Cost Price has always exclusively referred to the value used for inventory valuation on the balance sheet AND the value used for Cost of Sales reporting on the Profit and Loss when no other context is provided.

IFRS is highly specific on this subject and is covered in FRS-4. The 2 concepts, "Inventory Valuation" (using Lionel's nomenclature) and "Cost Price" must be the same unless it can be proven that the net realisable value of the stock is less than cost price. If you are in an activity based costing environment there may be some non direct overheads that get included to make up a "activity based cost price" but it is nothing more than dreams based on some cost accountants ideas of what should and should not be included. It cannot be used for Cost of Sales or Inventory Valuation.

If you want to record some kind of fully costed cost price and give it a name used for management or cost accounting purposes, or sales quoting or any other non legal thing that ERP systems do, then thats fine. All I ask is not to confuse the terms with the commonly accepted APICS and IFRS terms as that is what Supply Chain Professionals worldwide and accountants subject to IFRS understand.

[clonedagain]

Thanks a lot for this comprehensive explanation.
I'm glad to learn that the standard Odoo is correct.
I guess then we need to find a more correct term to describe the various
components of production costs in community modules.

[gdgellatly]

IFRS only recognises FIFO, Average and Actual including systematic allocation of direct overheads in a very limited scope which ends up equating to standard cost with variance analysis. In theory this doesn't need to be at the item level, in practice it most often is with variances analysed at an aggregate level.

Looking in the APICS dictionary (as the part you are talking about is outside IFRS scope), depending on what you are doing.

Absorption Cost
Allocation Cost
Full Cost
Activity Based Cost
etc etc.

But if I was looking for one single term that defines how all these non legal cost methods are used I choose something like "Internal Cost Price" reflecting the fact that it has no accounting impact and is really just an organisational artifact for decision making.

[gdgellatly]

Hi Lionel, @clonedagain

I think there is a secondary issue here, which is partly the cause of your problem. While the term Cost Price is correct, I am not saying that I believe that Odoo's calculation of cost price is necessarily correct for all industries, valuation methods, and build strategies and is usually an area that for distribution and manufacturing in particular requires custom development.

[clonedagain]

Yes @gdgellatly I think I see your point, confirmed by the bits I've been reading on the subject.
I've suggested just now that the second fields we have in OCA could actually be merged with the standard one, and the computation including BOMs made a "costing method": OCA/margin-analysis#6 (comment).