Oak & Co: a €95 standard that costs €113 to make
Oak & Co makes 240 oak chairs a month in one plant, 21 working days, one 8-hour shift. The BoM for CHAIR-OAK is 4 legs at €6, 1 seat at €42, 1 back at €28, and 0.5 m² of varnish at €10/m². Two operations run on it: Cutting on work centre 'Saw' (15 min, €25/h) and Assembly on 'Bench' (25 min, €18/h). The product category uses Standard Price costing and the chair's standard price is €95 - which is what appears in every stock valuation and in the gross margin report. The controller's own build-up says the chair costs about €113 to make. She also wants to push volume to 400 chairs a month and asks whether Saw or Bench will break first.
1. Reconcile the €95 and the €113. Where does the gap come from, and why do valuations show €95?
Read the worked answer
The controller is right on the build-up:
| Element | Calculation | Cost |
|---|---|---|
| Legs | 4 × €6 | €24.00 |
| Seat | 1 × €42 | €42.00 |
| Back | 1 × €28 | €28.00 |
| Varnish | 0.5 × €10 | €5.00 |
| Cutting | 15/60 × €25 | €6.25 |
| Assembly | 25/60 × €18 | €7.50 |
| Total | €112.75 |
Two things disconnect this from the ledger:
- Standard Price costing. With a standard price, every stock move and every delivery is valued at €95 regardless of what was actually consumed. The €17.75 difference lands in a price-difference/variance account, and the margin report - which reads the standard - is optimistic by that amount on every chair.
- Operations may not even be in the €95. If the work centres have no cost per hour filled in, operations contribute zero to any BoM cost computation. Verify the Saw and Bench cost fields before trusting Compute Price from BoM; if they are empty, the button reproduces €99, not €112.75.
Also confirm the component standard costs are current - legs bought at €7 today still consume at €6.
2. She wants to switch the category to Average Cost. What actually happens to the 180 chairs in stock and the open manufacturing orders?
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Changing the costing method is not retroactive. Odoo does not revalue existing stock when you flip the category - the 180 chairs already valued at €95 stay at €95 in their valuation layers until they move, and open MOs with components already reserved keep their original valuation. From the switch onward, new moves use the running average.
That produces a period where identical chairs carry two costs, which will confuse the margin report more than the current problem does. Practical sequence:
- Pick a period boundary and take an inventory valuation report before the change.
- Run an inventory revaluation to bring the 180 units to a realistic cost (≈€112.75 if that is what the next MO produces), so the average starts from a sane base.
- Note that the product's Cost field becomes the computed average - do not leave a stale manually entered figure there.
- Close or finish open MOs first where possible, so their valuations are not straddling the change.
Alternative worth putting to her: stay on Standard Price but review and update the standard quarterly from the BoM computation. Standard costing is defensible for a product with a stable BoM; the failure here is that nobody maintained the standard, not that standard costing is wrong.
3. At 400 chairs a month, which work centre constrains output? Show the arithmetic and the levers.
Read the worked answer
Available capacity per work centre per month:
21 days × 8 h × 60 min = 10,080 minutes
Load at 400 chairs:
| Work centre | Time per chair | Load at 400 | Utilisation | Headroom |
|---|---|---|---|---|
| Saw | 15 min | 6,000 min | 60% | 4,080 min ≈ 272 chairs |
| Bench | 25 min | 10,000 min | 99% | 80 min ≈ 3 chairs |
Bench is the constraint. It is already at 60% for 240 chairs and has essentially no slack at 400 - a single sick day, a rework loop or a batch of a second product wipes out the plan.
Levers, in order of cost:
- Second bench. Set the work centre's Capacity to 2 operations in parallel (two benches), which halves the effective minutes per chair to 12.5. This is a one-field change in the work centre, not a new routing.
- Overtime or a second shift on Bench only - 400 chairs needs 10,000 min against 20,160 min at two shifts.
- Reduce assembly time structurally: pre-assemble sub-components on a separate, less loaded centre via a sub-BoM.
- Re-check the 25 minutes: if it excludes setup/cleanup time or the work centre's Time Efficiency is below 100%, real load is worse than the table shows.