Odoo ERP Manufacturing Accounting: How to Set Up Accurate Costs for Work Centers and Products

1. A Manufacturing Story: When “Good Enough” Costs Aren’t Enough

The operations director of a mid-sized factory thought their numbers were under control. Production was running, orders were delivered, and the P&L showed a healthy margin. But when a key customer asked for a price reduction, things fell apart.

Nobody could confidently answer a simple question: “What does it really cost us to manufacture this product?” Some pointed to spreadsheets, others to accounting reports, but none of them matched. Labor was estimated, overhead was guessed, and the cost of production seemed to change depending on who you asked.

This is exactly where a properly configured Odoo ERP Manufacturing environment makes the difference: it turns time, materials, and operations into traceable, auditable costs instead of assumptions.

The core question this article answers is:
How do you configure Odoo manufacturing and accounting so that work centers, labor, and materials produce accurate, automated product costs?

2. Key Terms in Odoo Manufacturing Accounting

Before we dive into the setup, it helps to align on a few core concepts you’ll use every day inside Odoo.

• Work Center
  A work center is a physical or logical place where operations happen (e.g., Assembly Line 1, CNC Machine). In Odoo, it groups work orders and holds costing parameters like cost per hour.
  Example: “Work Center 1” represents your main assembly line that runs 8 hours a day.
• Work Order
  A work order is a specific execution of an operation for a manufacturing order, tied to a work center and tracked in time.
  Example: The “Assembly” work order for MO0007 runs for 60 minutes in Work Center 1.
• Bill of Materials (BoM)
  The BoM defines which components and which operations are needed to manufacture one finished product.
  Example: Your finished product uses 2 units of Raw Material 1 and 2 units of Raw Material 2 plus one 60‑minute operation in Work Center 1.
• Overhead Cost (Work Center Cost per Hour)
  This is the cost assigned to using a work center per hour – typically depreciation, energy, rent, and other indirect costs.
  Example: Work Center 1 has an overhead cost of $100 per hour in Odoo.
• Employee Hourly Cost
  Defined in the HR settings of each employee, this can represent an all‑in hourly cost: wage, taxes, insurance, benefits, etc.
  Example: An operator’s hourly cost is set to $50 in Odoo Employees to represent the total cost of employing them, not just their net salary.
• Production (Cost of Production) Account
  A ledger account where Odoo temporarily accumulates labor and overhead related to manufacturing, usually configured on the product category.
  Example: When you complete a manufacturing order, $150 of labor and overhead is posted to the “Cost of Production” account before being capitalized into stock.

3. Why Accurate Manufacturing Accounting Matters: Two Business Views

The way you configure Odoo ERP Manufacturing directly shapes your margins, pricing, and investment decisions. If your work center and labor costs are wrong, every report that uses them is misleading.

Example 1: Industrial Equipment Manufacturer

A company building industrial machines runs long, complex jobs. Their operations are labor-heavy, with multiple technicians on each work order.

• If employee hourly costs in HR are set too low (base wage only), labor is under-costed.
• If work center overhead per hour is guessed, not measured, total costs are off by thousands per project.
• Quotations based on these costs appear profitable, but projects end up losing money.

Ignoring accurate manufacturing accounting means their sales team keeps selling unprofitable configurations without realizing it.

Example 2: Consumer Goods Producer

A fast-moving consumer goods company produces large volumes of similar products. They use average cost with automated inventory valuation in Odoo.

• BoMs list materials correctly, but labor and overhead from work centers are not properly allocated.
• The cost of production account is not configured on the product category.
• Inventory valuation looks fine on paper, but unit cost is understated.

As energy and labor costs rise, management doesn’t see the real impact on product cost, so they delay price adjustments and lose margin quietly every month.

4. Building Reliable Manufacturing Costs in Odoo: Step-by-Step Logic

The transcript outlines a practical way to transform Odoo from a simple production tracker into a cost‑accurate manufacturing ERP. Below is the distilled logic you can adopt and tailor with an Odoo Partner like ERPixel.

4.1. Start with Manufacturing Settings and Work Orders

In the Manufacturing app, enable Work Orders. This is crucial: without them, you can’t capture actual time spent per operation.

Next, create your Work Centers under Configuration. For each work center:

• Set the Cost per Hour for the work center: this is your overhead rate (rent, utilities, machine depreciation, supervision, etc.).
• Optionally set an Employee Cost per Hour (estimate) as a planning reference. This is not the actual cost used for accounting, but a simple budgeting assumption.

Example: Work Center 1 has $100/hour overhead, estimated $50/hour employee cost. On paper, you’re planning for $150/hour total, but Odoo will use actual employee costs from HR during execution.

4.2. Configure Real Employee Costs in HR

Open the Employees app and review each employee’s Hourly Cost in their HR settings. This value should represent their real economic cost to the company, not just payroll.

• Include social security, taxes, benefits, insurance, and other overheads tied to that role.
• Use this as the all‑in cost per hour for accurate manufacturing accounting.

When workers log time on work orders in Odoo ERP Manufacturing, the system uses this HR hourly cost to calculate the actual labor cost per manufacturing order.

4.3. Define Products, Materials, and the BoM Properly

In the Products menu, create a finished product and its components:

• Finished Good – set it as “Can be Sold” and “Manufactured”. Assign it to a product category that uses average cost with automated inventory valuation.
• Raw Materials – mark as “Can be Purchased” only, set vendor prices (e.g., $10 for Raw 1, $5 for Raw 2).

Then create the Bill of Materials for the finished good:

• Add Raw 1 and Raw 2 with the proper quantities (for example, 2 units of each).
• Add an Operation linked to Work Center 1, with a planned duration (e.g., 60 minutes).

This BoM ties together materials, labor, and overhead, so that every manufacturing order drives realistic cost calculations.

4.4. Connect Manufacturing to Accounting via Product Categories

In the Inventory app, open Product Categories and edit the category used for your manufactured products (e.g., “Average Cost”).

Focus on the Production Account (often named “Cost of Production”):

• This account accumulates labor and overhead generated by work orders during manufacturing.
• When a manufacturing order is completed, Odoo moves these costs from the cost of production account to inventory (stock valuation) for the finished goods.

In older Odoo versions, this logic lived at the location level (Production location’s valuation account). In recent versions, it’s more cleanly handled at the product category level, which simplifies multi-location setups.

4.5. From Execution to Journal Entries

Once everything is configured, the process looks like this:

1. You create and confirm a Manufacturing Order for the finished product.
2. Work Orders are generated for the operations defined in the BoM.
3. Employees log their actual time on each work order.
4. Odoo calculates:
   • Labor cost = Actual time × Employee hourly cost (from HR)
   • Overhead cost = Actual time × Work center cost per hour
5. On order completion, Odoo posts:
   • Material consumption from stock
   • Labor and overhead into the cost of production account
   • Combined cost capitalized into the finished goods inventory

The result: your inventory valuation, unit cost, and margin analyses are based on actual operations, not generic assumptions.

4.6. How ERPixel Helps You Get This Right

While the logic is clear, every manufacturer has its own nuances: standard cost vs. average or FIFO, different production accounts per line, or hybrid costing models for project-based manufacturing. An official Odoo Partner like ERPixel can:

• Review your existing costing method and align it with Odoo’s capabilities.
• Design work center structures that reflect your real plant layout.
• Model BoMs and operations so that time tracking and costs are both accurate and usable.
• Configure accounting and reporting so financial teams see exactly how labor and overhead flow into inventory and COGS.

With a well-implemented Odoo ERP Manufacturing stack, your production floor and finance team finally speak the same language – numbers.

5. Conclusion: From Guesswork to Confident Manufacturing Costs

To answer the question from the beginning: you get accurate manufacturing costs in Odoo by combining correct work center costing, realistic employee hourly costs, well-structured BoMs, and a properly configured cost of production account on your product categories.

When configured this way, Odoo ERP Manufacturing captures actual time and turns it into auditable labor and overhead, automatically flows those values into accounting, and builds reliable unit costs. Pricing, make‑or‑buy decisions, and margin analysis become far more trustworthy.

If you want your manufacturing accounting to move beyond spreadsheets and approximations, partner with ERPixel. Our team designs and implements Odoo manufacturing, accounting, and automation so your factory data becomes a strategic asset – not a source of doubt. Contact ERPixel to discuss your Odoo development and ERP implementation roadmap today.