The Co-product BOM functionality allows for producing additional products as a result of one manufacturing order.
This allows line workers to report the number of co-products, side products, rejected products, or scrap.
This functionality can be enabled at Settings -> System settings -> Professional functions -> Co-product BOM.
- Demo video: Co-Product BOM.
- Configuring co-products.
- Reporting co-products.
- Cost allocation to co-products.
Co-products must be previously configured in the BOM of the main product before these can be reported.
To set up additional products:
- At Stock -> Items create the articles for the additional products, for example, Waste or Scrap.
- Open the BOM of your product, where these items will be produced as additional side-products.
- Add the possible additional products in the section Additional product.
- Set the percentage of total MO costs, that are allocated to co-products. If undefined, the cost is 0.
Additional products can be reported in several places:
- Co-products are added to stock when these are reported by workers in My production plan or in the Internet-kiosk when they pause or finish a production operation. The software will ask the quantities of products and additional products that have been processed.
- Also, co-products can be reported in the manufacturing operation details. Read: How to edit operation in a Manufacturing Order?
It is possible to divide the costs of a manufacturing order between the main product and co-products of the main product.
To do so, the percentage of costs that are allocated to co-products must be set in the product's BOM details.
- A cost allocation percentage is set per one unit.
- If the percentage is undefined, the cost is 0.
For example, with one co-product, if 20% of costs are allocated to a co-product, then:
- 100% - 20% = 80% of costs will be allocated to the main product (percentages must add up to 100%).
- One unit of co-product will be allocated 4 times (80/20) fewer costs than one unit of the main product, i.e. a co-product cost will 1/4th of the main product.
- If total MO cost is $1000, 24 main products and 4 co-products are made, then costs will be allocated as follows:
|Total MO cost:||A = Direct materials + Direct labor + Overhead =||$ 1000|
|Cost of 24 main products:||B = A x 24 x (80 / 100) / (24 x (80 / 100) + 4 x (20 / 100)) =||$ 960|
|Cost of 4 co-products:||C = A x 4 x (20 / 100) / (24 x (80 / 100) + 4 x (20 / 100)) =||$ 40|
|Cost of 1 main product:||D = B / 24 =||$ 40|
|Cost of 1 co-product:||E = C / 4 =||$ 10|
How to find the cost allocation percentage for a co-product
What is the cost of a co-product is a business decision. Standard costs for co-products and main products should be found, or cost ratios set. Only then, it is possible to calculate the cost allocation percentage to use in the software.
- General formula: Cost percentage of co-product A = (Cost per unit of co-product A) / (Sum of all unit costs of co- and main products)
- In case of 1 co-product: X = E / (D + E)
X - the cost allocation percentage for the co-product. The unknown variable.
D - the cost per unit of the main product.
E - the cost per unit of the co-product.
If the costs are $40 and $10, we find the cost allocation percentage: X = 10 / (10 + 40) = 20%
If you have more co-products, then the same approach can be used for all.
For example, 3 co-products:
|Product||Standard cost per unit||Calculation||Percentage||Comment|
|Main product||10||10 / 16 =||62.5%||This can be calculated for a check, to verify that sum of cost allocation percentages adds up to 100%. This is not entered into the software|
|By-product 1||1||1 / 16 =||6.25%|
|By-product 2||2||2 / 16 =||12.5%|
|By-product 3||3||3 / 16 =||18.75%|
If there is no standard cost, but ratios or weights are in place instead, then the result can be found with the exact same approach, as in the above table. E.g. by-product 1 cost is 1/10th of the main product, by-product 2 cost is 2/10ths, by-product 3 cost is 3/10ths, etc.