Example: Co-Product and By-Product Costing

This example demonstrates cost distributions for co-product operations for material, labor, and machine costs. The system calculates the cost distributions based upon the material, labor, and machine costs of the co-product items while generating the BOM for the co-product mix. This example also includes by-products as part of the co-product mix.

You can also assign cost distribution percentages for material, labor, and machine costs for a specific co-product mix on the Co-Product Mix Operations form. This example also includes distributions that were modified to reflect a 60% cost distribution for MA-10000 and 40% cost distribution for the MA-20000 for material and machine costs.

This job will produce two co-products using the co-product mix M0001 found in the CloudSuite Business demo database:

  • MA-10000 - quantity of 1
  • MA-20000 - quantity of 1

The total released quantity of the job will be 2 co-products.

Note:  For co-products that are valued using the Standard cost method, variances are reported for the co-product mix as a whole and are reported against an individual job and are not distributed to the individual co-products. Variances for the co-product job are written to the product codes used by the lead co-product.

Material Costs

Operation 10:

This table displays material and material overhead cost details:

  Material   Cost
(1) SY-10000   $202.40
(2) NA-150000 By-product $-2.00
(3) CY-10000   $2.08
    Total $202.48

This table displays cost distribution details:

Material Description Formula
MA-10000 Total material and material overhead cost is $102.24 on Item BOM for a quantity of 1 for operation 10. [(101.24) * 1] / 202.28 = 50%
MA-20000 Total material and material overhead cost $101.24 on Item BOM for a quantity of 1 for operation 10. [(101.24) * 1] / 202.28 = 50%

The system calculates the material cost distribution to be 50% for each co-product based upon the material component costs of the co-product items while generating the BOM for the co-product mix.

This table displays modified cost distribution details:

Material Percent Cost Distribution Formula
MA-10000 60% cost distribution (202.48)*60 = $121.49
MA-20000 40% cost distribution (202.48) *40 = $80.80

The system calculates the 60%/40% cost distribution based upon the cost distribution percentage defined on the Co-Product Mix Operations form.

Operation 20:

This operation does not have any material costs.

Operation 30:

This table displays material and material overhead cost details:

Material Cost
PT-40000 $2.00
Total $2.00

This table displays cost distribution detail:

Material Description Formula
MA-10000 Total material and material overhead cost is $1 on Item BOM for quantity of 1 for operation 30. [(1.00) * 1] / 2.00 = 50%
MA-20000 Total material and material overhead cost is $1 on Item BOM for quantity of 1 for operation 30. [(1.00) * 1] / 2.00 = 50%

The system calculates the material cost distribution to be 50% for each co-product based upon the material component costs of the co-product items while generating the BOM for the co-product mix.

This table displays modified cost distribution details:

Material Percent Cost Distribution Formula
MA-10000 60% cost distribution (2.00) * .60 = $1.20
MA-20000 40% cost distribution (2.00) * .40 = $0.80

The system calculates the 60%/40% cost distribution based upon the cost distribution percentage defined on the Co-Product Mix Operations form.

Labor Costs

Operation 10:

This table displays labor, labor overhead, and setup cost detail:

Co-Product Setup Cost Run Cost Labor Overhead
MA-10000 $15 $0 $20
MA-20000 $0 $0 $0
Total for both Co-Products $15 $0 $20

This table displays cost distribution detail:

Co-Product Cost Distribution
MA-10000 100%
MA-20000 0%

The system assigns 100% of the labor distribution to the lead co-product, MA-10000, because the run cost is zero for operation 10. Labor overhead, in this example, is associated with the setup costs because the run cost is zero for this operation. Setup costs are tracked separately from run and labor overhead costs. Since the labor cost distribution is 100% for the lead co-product, the setup cost is distributed to the lead co-product, MA-10000. (In this case, the system uses the labor cost distribution percentage when distributing setup costs for the whole co-product mix).

Operation 20:

This table displays labor, labor overhead, and setup cost detail:

Co-Product Setup Costs Run Cost Labor Overhead Total Labor per Co-Product
MA-10000 $0 $0.45 $0.60 $1.05
MA-20000 $0 $0.45 $0.60 $1.05
      Total for both Co-Products $2.10

This table displays cost distribution detail:

Material Description Formula
MA-10000 Total material and material overhead cost is $1.05 for quantity of 1 for operation 20. [(1.05) * 1] / 2.10 = 50%
MA-20000 Total material and material overhead cost is $1.05 for quantity of 1 for operation 20. [(1.05) * 1] / 2.10 = 50%

The system calculates the labor cost distribution to be 50% for each co-product based upon the labor cost for each co-product item and while generating the BOM for the co-product mix. Operation 20 does not have any setup costs.

Operation 30:

This table displays labor, labor overhead, and setup cost detail:

Co-Product Setup Costs Run Cost Labor Overhead
MA-10000 $15 $0 $20
MA-20000 $0 $0 $0
Total for both Co-Products $15 $0 $20

This table displays cost distribution data:

Material percent Cost Distribution
MA-10000 100%
MA-20000 0%

The system assigns 100% of the labor distribution to the lead co-product, MA-10000, because the run cost is zero for operation 30. Labor overhead, in this example, is associated with the setup costs because the run cost is zero for this operation. Setup costs are tracked separately from run and labor overhead costs. Since the labor cost distribution is 100% for the lead co-product, the setup cost is distributed to the lead co-product, MA-10000. (In this case, the system uses the labor cost distribution percentage when distributing setup costs for the whole co-product mix).

Machine Costs

Operation 10:

Co-Product Machine Cost
MA-10000 $1.00
MA-20000 $1.00
Total: $2.00

This table displays cost distribution detail:

Material Description Formula
MA-10000 Total material and material overhead cost is $1 for quantity of 1 for operation 10. [(1.00) * 1] / 2.00 = 50%
MA-20000 Total material and material overhead cost is $1 for quantity of 1 for operation 10. [(1.00) * 1] / 2.00 = 50%

The system calculates the machine cost distribution to be 50% for each co-product based upon the machine costs of the co-product items while generating the BOM for the co-product mix.

This table displays modified cost distribution detail:

Material Cost Distribution Formula
MA-10000 2.00 * .60 = $1.20
MA-20000 2.00 * .40 = $0.80

The system calculates the 60%/40% cost distribution based upon the cost distribution percentage defined on the Co-Product Mix Operations form.

Operation 20:

This operation does not have any machine costs.

Operation 30:

Co-Product Machine Cost
MA-10000 $2.00
MA-20000 $2.00
Total $4.00

This table displays cost distribution detail:

Material Description Formula
MA-10000 Total material and material overhead cost is $2 for quantity of 1 for operation 20. [(2.00) * 1] / 4.00 = 50%
MA-20000 Total material and material overhead cost is $2 for quantity of 1 for operation 20. [(2.00) * 1] / 4.00 = 50%

The system calculates the machine cost distribution to be 50% for each co-product based upon the machine costs of the co-product items while generating the BOM for the co-product mix.

This table displays modified cost distribution detail:

Material Formula
MA-10000 4.00 * .60 = $2.40
MA-20000 4.00 * .40 = $1.60

The system calculates the 60%/40% cost distribution based upon the cost distribution percentage defined on the Co-Product Mix Operations form.

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