By-Product Cost Analysis in Odoo 18 Manufacturing
By Braincuber Team
Published on January 8, 2026
A food processing company produces olive oil as their primary product. During the extraction process, they also generate olive pomace—the leftover pulp that can be sold as animal feed or for pomace oil production. The accounting team struggles to determine how much of the production cost should be attributed to the main product versus the by-product. They've been allocating all costs to olive oil, making the main product appear more expensive than competitors while the by-product revenue looks like pure profit. This distorts profitability analysis and leads to incorrect pricing decisions.
Odoo 18 Manufacturing module includes Cost Share functionality that automatically allocates production costs between main products and by-products based on configurable percentages. Define the cost share percentage when setting up by-products in the Bill of Materials—if a by-product has a 15% cost share, the system reduces the main product's cost by 15% of total production expenses and assigns that amount to the by-product. The Overview tab shows cost breakdowns, and journal entries correctly distribute costs between finished goods and by-product inventory accounts.
Core Benefit: Cost Share percentage in the BoM → production costs automatically split between main product and by-products → accurate cost allocation → correct inventory valuation → reliable profitability analysis for both products.
Understanding By-Product Cost Share
Cost Allocation
Total production cost is split between the main product and by-products based on percentages. A 10% cost share means 10% of component and operation costs are assigned to the by-product.
Accurate Valuation
By-products carry their fair share of production costs in inventory valuation. This prevents the main product from appearing artificially expensive while by-products show inflated margins.
Journal Entries
Accounting entries automatically record cost allocation. The by-product's share credits cost of production and debits by-product inventory valuation—no manual adjustments needed.
Profitability Analysis
With costs properly distributed, margin analysis for both main product and by-products reflects reality. Make informed pricing and production decisions based on accurate data.
Prerequisites: Enable Required Settings
Enable Work Orders
Work Orders are needed for operation cost tracking:
- Go to Manufacturing → Configuration → Settings
- Under Operations section, enable Work Orders
- This allows processing operations at specific work centers
- Work center costs (machine + labor) are tracked per operation
Enable By-Products
Activate by-product functionality:
- In the same Settings page, enable By-Products
- This adds the By-Products tab to Bill of Materials
- Click Save to apply changes
- By-product creation now available in BoM configuration
Setting Up Work Centers with Costs
Work centers define where operations happen and their associated costs. These costs are included in total production cost and subsequently distributed to by-products based on cost share percentage.
WORK CENTER: Olive Press Mill ═══════════════════════════════════════════════════════════ GENERAL INFORMATION ─────────────────────────────────────────────────────────── Name: Olive Press Mill Code: OPM-001 Working Hours: Standard 40 hours/week Alternative Work Center: Backup Press (for overflow) COST PER HOUR ─────────────────────────────────────────────────────────── Work Center Cost: $120.00/hour (Machine operating cost: power, maintenance, depreciation) Employee Cost: $45.00/hour (Labor cost for operators at this work center) Total Hourly Cost: $165.00/hour PRODUCTION INFORMATION ─────────────────────────────────────────────────────────── Time Efficiency: 100% Capacity: 1 unit at a time OEE Target: 85% Setup Time: 15 minutes Cleanup Time: 20 minutes ─────────────────────────────────────────────────────────── COST CALCULATION EXAMPLE ─────────────────────────────────────────────────────────── If extraction operation takes 2 hours: Work Center Cost: 2 × $120 = $240 Employee Cost: 2 × $45 = $90 Total Operation Cost: $240 + $90 = $330
Creating Bill of Materials with By-Products
The Bill of Materials defines components, operations, and by-products. The Cost Share percentage on by-products determines how production costs are distributed.
BILL OF MATERIALS: Extra Virgin Olive Oil ═══════════════════════════════════════════════════════════ PRODUCT INFORMATION ─────────────────────────────────────────────────────────── Product: Extra Virgin Olive Oil Product Quantity: 1 Liter BoM Type: Manufacture this product Reference: BOM-EVOO-001 COMPONENTS TAB ─────────────────────────────────────────────────────────── Component | Quantity | Unit | Unit Cost | Total ──────────────────────────────────────────────────────────── Fresh Olives | 8 | kg | $3.50 | $28.00 ──────────────────────────────────────────────────────────── Component Cost Total: $28.00 OPERATIONS TAB ─────────────────────────────────────────────────────────── Operation | Work Center | Duration | Cost/Hour | Cost ──────────────────────────────────────────────────────────── Washing | Olive Press Mill | 15 min | $165.00 | $41.25 Crushing | Olive Press Mill | 30 min | $165.00 | $82.50 Malaxation | Olive Press Mill | 45 min | $165.00 | $123.75 Extraction | Olive Press Mill | 60 min | $165.00 | $165.00 Filtering | Olive Press Mill | 20 min | $165.00 | $55.00 Bottling | Bottling Line | 10 min | $80.00 | $13.33 ──────────────────────────────────────────────────────────── Operation Cost Total: $480.83 BY-PRODUCTS TAB ─────────────────────────────────────────────────────────── By-Product | Quantity | Unit | Cost Share ──────────────────────────────────────────────────────────── Olive Pomace | 5 | kg | 12% ──────────────────────────────────────────────────────────── COST BREAKDOWN (EXPECTED) ═══════════════════════════════════════════════════════════ Component Cost: $28.00 Operation Cost: $480.83 ─────────────────────────────────────────────────────────── Total Production Cost: $508.83 By-Product Cost Share (12%): $61.06 ─────────────────────────────────────────────────────────── Main Product Cost (EVOO): $447.77 By-Product Cost (Pomace): $61.06
Cost Share Calculation
The Cost Share percentage determines what fraction of total production costs is allocated to each by-product. Multiple by-products can have different percentages, and the main product receives the remainder.
COST SHARE CALCULATION ═══════════════════════════════════════════════════════════ FORMULA ─────────────────────────────────────────────────────────── Total Production Cost = Component Cost + Operation Cost By-Product Cost = Total Production Cost × Cost Share % Main Product Cost = Total Production Cost - Sum(By-Product Costs) EXAMPLE: Olive Oil Production ─────────────────────────────────────────────────────────── Given: Component Cost (Olives): $28.00 Operation Cost (6 operations): $480.83 By-Product Cost Share: 12% Step 1: Calculate Total Production Cost Total = $28.00 + $480.83 = $508.83 Step 2: Calculate By-Product Cost Pomace Cost = $508.83 × 12% = $61.06 Step 3: Calculate Main Product Cost EVOO Cost = $508.83 - $61.06 = $447.77 RESULT ─────────────────────────────────────────────────────────── Product | Cost | Per Unit ──────────────────────────────────────────────────────────── Extra Virgin Olive Oil | $447.77 | $447.77/liter Olive Pomace | $61.06 | $12.21/kg (5 kg) ──────────────────────────────────────────────────────────── Total: | $508.83 | (equals production cost) MULTIPLE BY-PRODUCTS EXAMPLE ═══════════════════════════════════════════════════════════ If production yields 3 outputs: By-Products: Olive Pomace: 10% cost share Olive Water: 5% cost share Total By-Products: 15% Main Product: 85% (100% - 15% = 85%) Cost Distribution: Total Production: $508.83 Olive Pomace: $508.83 × 10% = $50.88 Olive Water: $508.83 × 5% = $25.44 Olive Oil: $508.83 × 85% = $432.51
Manufacturing Order Execution
Create Manufacturing Order
Start the production process:
- Go to Manufacturing → Operations → Manufacturing Orders
- Click New to create a new order
- Select the product (Extra Virgin Olive Oil)
- BoM is automatically selected with by-products
- Click Confirm to start production
Complete Work Orders
Process each operation:
- Work Orders appear for each operation defined in BoM
- Start and complete each operation (Washing → Crushing → etc.)
- Actual time is recorded for accurate cost calculation
- Employee performing the work is logged
Validate Manufacturing Order
Finalize production:
- Once all operations complete, validate the MO
- Main product and by-products are produced
- Stock moves created for all outputs
- Cost allocation calculated based on actual costs
Viewing Cost Breakdown
After completing the manufacturing order, the Overview tab shows detailed cost information including the by-product cost share allocation.
MANUFACTURING ORDER: MO/00045 - Extra Virgin Olive Oil ═══════════════════════════════════════════════════════════ ORDER DETAILS ─────────────────────────────────────────────────────────── Product: Extra Virgin Olive Oil Quantity Produced: 1 Liter Status: Done Completion Date: 2026-01-08 14:30:00 COMPONENT COSTS ─────────────────────────────────────────────────────────── Component | Consumed | Unit Cost | Total ──────────────────────────────────────────────────────────── Fresh Olives | 8 kg | $3.50 | $28.00 ──────────────────────────────────────────────────────────── Total Component Cost: $28.00 OPERATION COSTS ─────────────────────────────────────────────────────────── Operation | Duration | Operator | WC Cost | Emp Cost | Total ──────────────────────────────────────────────────────────────────── Washing | 0:16:23 | Maria Garcia | $32.77 | $12.29 | $45.06 Crushing | 0:31:45 | Maria Garcia | $63.50 | $23.81 | $87.31 Malaxation | 0:48:12 | Maria Garcia | $96.40 | $36.15 | $132.55 Extraction | 1:02:30 | Maria Garcia | $125.00 | $46.88 | $171.88 Filtering | 0:22:15 | Maria Garcia | $44.50 | $16.69 | $61.19 Bottling | 0:11:05 | John Smith | $14.78 | $8.31 | $23.09 ──────────────────────────────────────────────────────────────────── Total Operation Cost: $521.08 COST SUMMARY ═══════════════════════════════════════════════════════════ Component Cost: $28.00 Operation Cost: $521.08 ─────────────────────────────────────────────────────────── TOTAL PRODUCTION COST: $549.08 BY-PRODUCT ALLOCATION ─────────────────────────────────────────────────────────── By-Product | Quantity | Cost Share | Allocated Cost ──────────────────────────────────────────────────────────── Olive Pomace | 5 kg | 12% | $65.89 ──────────────────────────────────────────────────────────── FINAL PRODUCT COSTS ═══════════════════════════════════════════════════════════ Main Product (EVOO): $549.08 - $65.89 = $483.19 By-Product (Pomace): $65.89 Per kg: $65.89 ÷ 5 = $13.18/kg ─────────────────────────────────────────────────────────── Total: $549.08 ✓
Journal Entries for By-Product Costs
Odoo automatically creates journal entries that correctly distribute costs between the main product and by-products, ensuring accurate accounting records.
JOURNAL ENTRY FOR BY-PRODUCT COST ALLOCATION
═══════════════════════════════════════════════════════════
REFERENCE: MO/00045 - By-Product Costing
DATE: 2026-01-08
STATUS: Posted
ENTRY DETAILS
───────────────────────────────────────────────────────────
Account | Debit | Credit
────────────────────────────────────────────────────────────
Stock Valuation - By-Products | $65.89 |
(Asset - Olive Pomace Inventory)
| |
Cost of Production | | $65.89
(Reduces main product cost)
────────────────────────────────────────────────────────────
Total: | $65.89 | $65.89
EXPLANATION
───────────────────────────────────────────────────────────
• By-Product inventory is debited with its cost share
• Cost of Production is credited, reducing main product cost
• Net effect: Production cost split between EVOO and Pomace
RELATED ENTRIES (COMPLETE PICTURE)
═══════════════════════════════════════════════════════════
1. Raw Material Consumption (when components consumed):
Debit: Work in Progress $28.00
Credit: Raw Materials Inventory $28.00
2. Operation Costs (when operations completed):
Debit: Work in Progress $521.08
Credit: Manufacturing Overhead $521.08
3. Finished Goods (when MO completed):
Debit: Finished Goods - EVOO $483.19
Credit: Work in Progress $483.19
4. By-Product Allocation (above entry):
Debit: Finished Goods - Pomace $65.89
Credit: Work in Progress $65.89
RESULTING INVENTORY VALUES
───────────────────────────────────────────────────────────
Extra Virgin Olive Oil: $483.19 (per liter)
Olive Pomace: $65.89 ($13.18/kg)
Complete Manufacturing Example
COMPLETE MANUFACTURING SCENARIO: Coffee Processing ═══════════════════════════════════════════════════════════ PRODUCT SETUP ─────────────────────────────────────────────────────────── Main Product: Premium Ground Coffee By-Product: Coffee Chaff (used for compost/tea) Components: Raw Coffee Beans PRODUCT COSTS ─────────────────────────────────────────────────────────── Raw Coffee Beans: $8.00/kg Premium Ground Coffee: Selling Price $45.00/500g Coffee Chaff: Selling Price $2.00/100g WORK CENTER: Coffee Mill ─────────────────────────────────────────────────────────── Work Center Cost: $100.00/hour Employee Cost: $50.00/hour Total: $150.00/hour BILL OF MATERIALS: Premium Ground Coffee (500g) ═══════════════════════════════════════════════════════════ COMPONENTS ─────────────────────────────────────────────────────────── Raw Coffee Beans | 600g | $8.00/kg | $4.80 OPERATIONS ─────────────────────────────────────────────────────────── Roasting | 30 min | $150/hr | $75.00 Cooling | 10 min | $150/hr | $25.00 Grinding | 15 min | $150/hr | $37.50 Packaging | 5 min | $150/hr | $12.50 ─────────────────────────────────────────────────────────── Total Operations: | 60 min | | $150.00 BY-PRODUCTS ─────────────────────────────────────────────────────────── Coffee Chaff | 100g | Cost Share | 8% COST CALCULATION ═══════════════════════════════════════════════════════════ Component Cost: $4.80 Operation Cost: $150.00 ─────────────────────────────────────────────────────────── Total Production Cost: $154.80 By-Product Cost (8%): $154.80 × 8% = $12.38 Main Product Cost: $154.80 - $12.38 = $142.42 BATCH PRODUCTION (10 Units) ═══════════════════════════════════════════════════════════ If we produce 10 packages (5kg) in one batch: Component Cost: $8.00/kg × 6kg = $48.00 Operation Cost: Same 60 min = $150.00 Total: $198.00 Per 500g Package: ($198.00 × 92%) ÷ 10 = $18.22 (after 8% by-product share) Coffee Chaff (1kg total): $198.00 × 8% = $15.84 Per 100g: $1.58 PROFIT ANALYSIS (Batch Production): ─────────────────────────────────────────────────────────── Ground Coffee: Cost: $18.22 | Sell: $45.00 | Margin: $26.78 (59%) Coffee Chaff: Cost: $1.58 | Sell: $2.00 | Margin: $0.42 (21%) Total Batch Revenue: (10 × $45) + (10 × $2) = $470.00 Total Batch Cost: $198.00 Batch Profit: $272.00 (58% margin)
Best Practices
✅ Follow These Guidelines:
- Research market value for cost share: The percentage should reflect the by-product's relative market value compared to the main product
- Consider sales potential: If by-product is readily sellable, assign meaningful cost share; if it's a disposal item, minimal or zero
- Account for disposal costs: If by-product requires disposal cost, you might use negative value or track separately
- Review periodically: Market conditions change—update cost share percentages when by-product values shift significantly
- Use consistent methodology: Apply the same cost share logic across similar products for comparable analysis
- Verify journal entries: Check that accounting entries correctly reflect the cost allocation
- Analyze profitability separately: Track by-product margins independently to identify revenue opportunities
- Document rationale: Keep records of why specific cost share percentages were chosen for audit trail
Common Issues and Solutions
🚨 Issue #1: By-Products Tab Not Visible
Bill of Materials doesn't show By-Products tab. Solution: Enable "By-Products" in Manufacturing → Configuration → Settings. Save the settings and refresh the BoM form.
🚨 Issue #2: Cost Share Not Calculating
By-product produced but no cost allocated. Solution: Verify Cost Share percentage is entered (not 0%) in the By-Products tab of the BoM. Check that the MO was validated, not just marked done.
🚨 Issue #3: Operation Costs Missing
Only component costs showing in breakdown. Solution: Ensure Work Centers have cost per hour configured, and Work Orders were used (not just MO without operations). Verify employee costs are set in HR.
🚨 Issue #4: Journal Entry Imbalanced
Accounting entry showing imbalance. Solution: Verify inventory valuation accounts are configured for both main product and by-products. Check that stock valuation method (FIFO/Average) is consistent.
Conclusion
Analyzing by-product cost share in Odoo 18 Manufacturing enables accurate cost allocation that reflects economic reality. Instead of assigning all production costs to the main product—making it appear artificially expensive—the Cost Share percentage distributes costs proportionally to by-products based on their relative value. Configure the percentage in the BoM's By-Products tab, execute manufacturing orders with work center operations, and the system automatically calculates exact cost allocation. The Overview tab shows detailed breakdowns, and journal entries correctly distribute costs between finished goods accounts. The result: accurate inventory valuation, reliable profitability analysis, and informed pricing decisions for both primary products and their valuable by-products.
🎯 Key Takeaway: Cost Share percentage in BoM → production costs split between main product and by-products → accurate journal entries created automatically → inventory valued correctly → profitability analysis reflects reality for all outputs.