## Co-Product BOM

The Co-product BOM functionality allows for producing additional products due to 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 additional products, such as 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 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 the 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 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 be 1/4th of the main product.
• If the 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 = 24 x 80% x A / (24 x 80% + 4 x 20%) = \$ 960 Cost of 4 co-products: C = 4 x 20% x A / (24 x 80% + 4 x 20%) = \$ 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

The cost of a co-product is a business decision. Standard costs for co-products and main products should be found, or cost ratios should be 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.
- 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 the 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 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.

#### Co-products in a multi-level MO

Attention! In multi-level MO, co-product BOM cost allocation can only be used at the first level (the main product of the MO).

• The creation of co-products of sub-assemblies can be reported during the reporting of their operations.
• The co-products of sub-assemblies will have a 0 cost, regardless of cost allocation percentage.
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