How does a finished goods item valuation rate calculating in erpnext

ERPNext Stock/Inventory
1

Hi Team,

How does a finished goods item valuation rate calculating in ERPNEXT, can we change it with a standard price?

Please guide me in this, any information will be much appreciated.

Regards,
Shivansh

2

Hi Shivansh,

In ERPNext, the Finished Goods valuation rate is calculated during the Stock Entry (Manufacture/Repack) process and is usually based on the Valuation Rate of raw materials + Additional Costs.

Here’s the default logic:

1. How ERPNext calculates Finished Goods valuation rate

  • When you manufacture an item via Work Order → Stock Entry (Manufacture):
    • It takes the valuation rate of each raw material from stock ledger.
    • Adds additional costs (if you entered them in Stock Entry → Additional Costs section).
    • Divides the total cost by the quantity of Finished Goods produced.
  • Formula (simplified):

pgsql

Valuation Rate = (Total RM cost + Additional Costs) / Finished Goods Qty
  • The valuation rate comes from:
    • Weighted Average, FIFO, or Moving Average method (set in Stock Settings).
    • Raw material cost is pulled from latest stock ledger entries.

2. Changing valuation to use Standard Price

If you want the Finished Goods valuation rate to always use a fixed “Standard Price” instead of being calculated from raw materials:

  1. Set the Valuation Method for that item to Standard Rate:
  • Go to Item → open your Finished Goods item.
  • Set Valuation Method to Standard Rate.
  1. Enter Standard Rate:
  • In the Item master, fill in Standard Rate field.
  1. ERPNext will now use this standard rate instead of calculating from actual raw material costs.

3. Alternative approaches

  • Custom script: You can override the valuation rate during Stock Entry submission by setting:

python

fg_item.valuation_rate = 500  # Your custom price

in a Stock Entry custom before_submit hook.

  • Pricing Rule approach: This affects selling prices but not valuation rate (so only useful if you want to influence invoices, not stock ledger).

Caution:
If you override valuation with a standard price, your stock valuation in accounts will no longer reflect actual RM costs, which may affect gross margins.

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