## Co-Product BOM

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.

Co-products must be previously configured in the BOM of the main product before these can be reported.

1. At Stock -> Items create the articles for the additional products, for example, Waste or Scrap.
2. Open the BOM of your product, where these items will be produced as additional side-products.
4. 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:

### The cost of the additional products

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.

Note that:

• 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.

There are several approaches, which could be used:

A. If you know the final product and co-product (standard) costs per unit or cost ratios, the following approach can be used:

• General form: Cost percentage of a (co-)product A = Cost per unit of the (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.
- the cost per unit of the main product.
- 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% Sum: 16 100%

If there is no standard cost, but ratios or weights are in place instead, then 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.

B. For example, formulas to calculate it can be found by applying some algebra.

According to the formula C, in the previous section, which can be used for finding the cost of all co-products in a MO, the following formula can be derived from it to find the cost percentage:

• X = Qm / (Qc x (A / C) + Qm - Qc)
X - the cost allocation percentage for the co-product. The unknown variable.

Qm - the quantity of the main product produced in MO.
Qc - the quantity of the co-product produced in MO.
A - the total MO cost.
- the total cost of co-products.

If we know:

• Quantity of main product: 24
• Quantity of co-product: 4
• Total MO cost: \$1000
• Total cost of co-products: \$40

We find that the cost allocation percentage per 1 co-product is: X = 24 / (4 x (1000 / 40) + 24 - 4) = 20%

C. In principle, it is possible to find it by experimenting with the software or with the above formulas, until a satisfactory result is found.

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