Joint Production with Process material Overview – Part 1

This document provide you  some basic overview about the Joint production (Co-product,By-Product) with  process Material.

Co-product:

• When more than one main product is produced in one production process each of them called as ‘Co-product’.
• Total cost occurred for the production process will be  apportioned  to each co-products based on apportionment structure given in Material master.
• A production process that yields co-products and By-products is called as Joint production.

By-Product:

• It is a secondary product derived from a manufacturing process.
• It can be output from ‘Joint Production’.
• It doesn’t not have any influence on financial reporting.
• By-product can be useful/sellable or can be waste.
• Net realizable value (NVR) is method used to valuate By-product.

Cost of the primary product(s) produced – Total cost of Production process.

Co-Product Vs By-Product:

• Co-products  will be costed based on any  one of the following method:

1.      Based on Apportionment structure where equivalence numbers are used for the apportionment .
2.       In case of fixed price co-product are costed based on net realizable-value method.

• Co-product will have ve sign along with co-product indicator in BOM.
• Co-product will influence the financial reports.

• By-products  can be costed based on any  one of the following method:

1. Directly from Material master price (  The COGM for the by-products = By-Product output quantity * its price from material Master)
2. Form cost estimate (The COGM for the by-products = By-Product output quantity * price calculated by cost estimate.)

• Byprorduct will have only  sign in BOM.
• It doesn’t not have any influence on financial reporting.
  

Process material:

• Process material represents the Production process which will not be stock.
• It acts as a Header material in BOM and task list.
• This will be used in the case where Production is not planned by MRP but by the capacity and raw material availability.

Example Scenario:

Co-Products                        : COP01 and COP02

Fixed price Co-product         : COP3

By-Product                          : BYP01

Raw material used               : RM003

Process Material                  : PROC

Here the some of the Important settings need to be done at master data level.

In costing view of PROC material, click on Button ‘Joint production’

Maintain in what percentage you want to apportion  total production cost into co-products.

It is also possible to give different % for Raw material ,Activity and OH cost which need new Source structure.

For Co_products:

Fixed price co-product

In BOM :

Material Costing for Co-Product and By-Product:

Here BOM and routing  is created for Process material which is non-stock and non-value material .PROC just represents the production process.

When we execute costing run for any one of the co-product let say for  COP01 material ,remaining co-products and by products prices will be updated except ‘Fixed price co-product’.

System will determine the Quantity structure (BOM and task list) from PROC material.

From this,

Production process cost =  Ram material cost + Activity cost + Over head Costs

                                    =   12.50 + 18.75 + 16.70 + 2 + 0+ 0

                                    =  49.95  EUR

Value for Apportion     = Production process cost – Fixed price Co-product cost – By-product cost

                                 = 49.95 – 15 – 0.01

                                  = 34.94

Apportion for COP1    =   34.94 * (60/100)

                                =  20.96 EUR

Apportion for COP2    =   34.94 * (40/100)

                                =  13.98 EUR

On release of this costing run the above prices will be updated in respective Material master. If you have any valid Quantity structure for By-Product (Only for costing) It price also calculated.

Settlement distribution in Production order:

Production Order Component overview:

Here settlement will be based on apportionment structure .

I will explain about period end activity of Joint Production in my next document.

Please leave your feedback if  anything notexplained clearly or wrongly.

Thanks and Regards,

Velmurugan S