Coproducts
Coproducts are items that are produced along with a formula item or other co-products. These products are inherent to the manufacturing process and occur every time the other item is manufactured. Coproducts have inventory value and are stored in inventory for use in a subsequent production operation or sold for a profit.
These co-products are specified in the formula with a quantity that is created for each batch size of the formula item or planning item. A cost allocation can be specified manually at the co-product item level or by using a total-cost allocation method where the costs are allocated proportionally based on quantities of the formula item and the quantities of the other co-products.
Example 1
In the production of 2 by 4-foot (ft) wood boards, a large plank of wood is ripped from a plank into one 2 by 4-ft board. During this production, the ripped ends of the board are stocked and used in a later production process to make wood chips.
The formula item in this example is the 2 by 4-ft wood board, while the ripped wood ends are co-products that are stocked with inventory value and consumed later to make the wood chips. The ripped ends are allocated some of the costs of the production of the 2 by 4-ft board to give cost to the wood chips that are later produced.
Example 2
In the production of extruded aluminum parts, a raw aluminum billet is placed in the extruder and, by using high heat and a hydraulic ram, the billet is pushed through a dye to yield a profile for the extrusion. This long-extruded piece is then chopped at a specific length to yield a sellable extrusion piece.
As part of this manufacturing process, excess aluminum that does not make it through the dye (drop-off or slough) is collected, weighed, and then sold back to the aluminum billet supplier to be blended with new aluminum to produce more aluminum billets. The extruded piece is typically stocked in feet and the aluminum drop-off is stocked in pounds. The aluminum drop-off that is created is allocated some of the cost of the production order and can vary in quantity produced based on each production run.
For this example, the extruded piece is the formula item that the company intends to make and the drop-off is the inherent co-product to the process that the company stocks and then sells back to the aluminum supplier.
This example is modeled in Supply Chain Management by using a formula that consumes the billet to produce the extrusion and has a co-product of the drop-off that is allocated 15 percent of the manufacturing cost.
Using total cost allocation for co-products
Guidelines for using total cost allocation (TCA) for co-products include:
If you set the Total Cost Allocation slider to Yes for a formula version, co-products must have a cost price that is more than 0 (zero). The value can be retrieved from the active cost version for the same site or for the first site for a formula that isn't site-specific. This condition is validated when the formula is approved.
You don't need to manually enter cost allocation percentages for co-products. Instead, the system automatically creates the cost allocation percentage as the average of active cost prices of co-products.
You don't need to enter standard cost for non-standard cost items that are co-products. The two types of costing versions in the system are standard cost and planned cost.
If an item isn't valuated by the standard cost valuation method, we recommend that you use an active cost price in the planned cost version. This price is used for cost estimation, for example, BOM calculation, production cost estimation, and fallback price in the inventory valuation process.
If you set the Total Cost Allocation slider to Yes for the formula version and the following conditions are true, the method of cost allocation is TCA, and the percentage of cost allocation is unchanged:
You added co-products.
You used a different method of cost allocation for the co-products.
If you set the Total Cost Allocation slider to No for the formula version and the following conditions are true, the method of cost allocation is changed to Manual, and the percentage of cost allocation is unchanged:
You added co-products.
The percentage of cost allocation is more than 0 (zero).
Before successfully performing a formula calculation, you must estimate the percentages of cost allocation. You can complete this step either manually or by using the Estimate cost option on the Co-products page.
Note
The Estimate cost option is available only when the Total Cost Allocation slider is set to Yes for the formula version. You can view the expected allocation if the batch order quantities that are reported as finished match quantities that appear on the formula.
When a batch order is created manually or a planned batch order is firmed, the value of the Total Cost Allocation slider for the formula version is copied to the batch order. However, you can change this setting on the batch order. If the Total Cost Allocation slider is set to No for the formula version and then changed to Yes for the batch order, the method of cost allocation for each line that was set to Manual is changed to TCA. A cost allocation of None is unchanged. If the Total Cost Allocation slider is set to Yes for the formula version and then changed to No for the batch order, the method of cost allocation for each co-product of the Production type is changed to Manual. Any estimated percentage of cost allocation is unchanged.
The Co-product cost allocation page shows the calculated cost allocation percentage. You can open this page from the Batch order page. This information is useful when the products and quantities that are reported differ from the scheduled or started quantities on the batch order. When the cost is complete, these new percentage allocations from TCA are shown on the Co-product cost allocation page.
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