Hi,

I just wanted to share this document I wrote sometime ago, which gives some details about the difference between Co-product and By-product.

Regards

Ali

Co-product and by-product

  1. Definition and Terminology:

   

Joint production is a production process that yields two or more products in a single production run

Co-Product: Valuable material generated during a production run together with other valuable materials

By-Product: Product that is produced incidental to the production process of other products. You enter by-products in the material list of a primary product or process material with a negative value.

  1. Pre-requisites:

A number of settings in the master data (BOM and material master data) must be made to enable costing in joint production.

  • You specify whether a material is a co-product in the MRP view or costing 1 view of its master data. The following are flagged as co-product:
    • Leading Co-product (called also primary product)
    • Non leading Co-product
    • Non leading Co-product are represented in the BOM with negative value and the Co-product indicator must be set in the BOM

    

  • An apportionment structure is specified in the primary product master data. The equivalence numbers are usually derived from the market prices for the co-products. The apportionment structure can be manually entered/changed in the Process order.
  • If you use different production version and different apportionment structure, you must specify the apportionment structure to be used in the production version.

    

  • The apportionment structure can specify a source structure consisting of a source of assignment of cost element group.
  • The system creates a settlement rule on the order based on the apportionment structure. If no apportionment structure exists, you must maintain the equivalences or the percentages in the apportionment rule of the order manually.


 

  1. Month end closing:

    

When using Co-Product an additional task is necessary before running the standard one as WIP, variances.

  1. 3.1 Preliminary settlement of co-products

If co-products are produced in a process order, the actual costs are collected on the order header. At the end of the period, these costs can be distributed to the order items according to equivalences. This enables you to charge each co-product with its share of the actual costs.

You can define different equivalence numbers depending on the nature of the costs (such as material and production costs). You must first define different sources structure in the customizing. In Danisco template only one source structure that include all cost elements is customized and usable. This means that all costs will be distributed to the co-products using the same apportionment structure.

The costs are always distributed to the co-products using the original cost element. This is performed on the basis of a settlement rule that you can access in the process order. This settlement rule is automatically generated when creating the process order using the apportionment structure defined in the main product master data.

If you have fixed-price co-products in an order item, no actual costs are distributed to this fixed price co-product. The actual costs of the joint production process are distributed to all co-products that are not fixed-price co-products. This follows the concept of fixed-price co-products, according to which fixed-price co-products are always carried at the manually entered price and not debited with additional costs.

  1. 3.2 WIP, Variance and Settlement

The WIP, variance and settlement functions reference the order item in joint production.

 

  1. Examples:
  • Process order is not defined as multi-items order
  • In the material list of the process order, the co-product indicator is not set for co-product
  • The settlement rule only contain one rule for finished good 100%
  • At good receipt, the system only propose the main product with movement type 101
  • The good receipt for the co-product is made in a separate transaction called Receipt By-Product with movement type 531 (by-product)
  • Good movement of By product with account 410901, for finished good 410908
  • No need to do preliminary settlement of co-product
  • WIP and Variance are calculated at the order main product level
  • All variances are posted with reference to the main product.

    

Co-product with fixed price:

  • Process order is defined as multi-items order
  • In the material list of the process order, the co-product indicator is set for co-product
  • The settlement rule contains one rule for the main product with an equivalence number of 1, and a settlement by amount (but no amount is displayed) of fixed price settlement to the fixed price co-product.
  • When doing the good receipt in the PI sheet, the system proposes the header product as well as the co-product with fixed price. Both materials are received with movement type 101.
  • With preliminary settlement of co-product, the system allocates all actual costs to the main product. The fixed price co-product is only allocated with its fixed price actual costs.
  • Variance is only determined for the main product.

    

Co-product with equivalence numbers

  • Process order is defined as multi-items order
  • In the material list of the process order, the co-product indicator is set for co-product
  • When doing the good receipt in the PI sheet, the system proposes the header product as well as the co-product.
  • The settlement rule doesn’t need to be maintained, the system will use the equivalence numbers of the master data
  • With preliminary settlement, the system create two controlling document (as well as PCA docs) that settles from the order header to the order item using the original cost element of the postings made on the process order
  • When calculating the variance, a variance per cost element is also calculated for both co-product
  • The settlement creates settlement documents for each co-product.

    

  • When doing the good receipt in the PI sheet, the by-product will be received using another separate task called By-product GR.
  • No need to settle the costs, there is only one receiver, which is the main product.

Special for costing

If we use co-product in PP, in the cost calculation, the co-product will use the production version of the main product if it is defined with procurement key E.

A co-product is normally always defined with key E (in-house production), as it is in fact produced in-house.

The Co-product will also have a special item category A (Co-product) in the cost estimate itemization.

To report this post you need to login first.

2 Comments

You must be Logged on to comment or reply to a post.

Leave a Reply