Co-Product and By-Product Costing

Use this topic for costing information when using co-products and by-products.

Co-Products

You can assign the cost distribution percentage between material, labor, and machine for each co-product job operation on the Co-Product Mix Operations form or the Co-Product Job Orders form for co-product mixes valued using the Actual cost method. If you do not assign the cost distribution percentages, the system calculates the cost distribution percentage between material, labor, and machine based upon the co-product item's BOM.

Note: Set up costs are tracked separately from the labor costs of the co-product mix and are not used when calculating the labor cost distribution. Set up costs, however, are distributed among the co-product items in the job based upon the labor cost distribution.

If the co-product mix is valued using the Actual cost method, the costs which accrue to the job through material, labor, machine, outside, and other cost transactions are assigned to each of the co-products according to the percent distributions you have previously defined.

If the co-product mix is valued using the Standard cost method, each co-product is assigned a standard cost which does not vary. Co-products are issued into inventory at the standard cost for the item as defined on the Items form. Variances are calculated for the co-product mix as a whole. This variance is reported against an individual job and is not distributed to individual co-products. The system compares a consolidated BOM of co-product items to the job when calculating variances.

By-Products

By-products are identified on a job by a - (minus sign) in the bill of material. By-products are negative issued into inventory from a job, either manually or as backflush items. When a by-product is issued to a job from inventory, the cost of the by-product item is handled just as a regular material item.

Note: Variable Overhead Rates and Fixed Overhead Rates are not used with by-products.

Actual Cost Method

If a by-product is valued using the Actual cost method, when a by-product is issued from a job to inventory, the cost of the by-product is taken from the job. Adjustments are made to WIP.

Consider these attributes of by-products valued using the Actual cost method:

Actual/FIFO and Actual/LIFO: A new stack is created and the cost is tracked through the stack when the by-product is issued to inventory. WIP is reduced by the planned cost.
Actual/Average: the planned cost is used as the cost of the by-product. When the by-product is issued to inventory, the inventory cost is reaveraged using the planned cost of the by-product. WIP is reduced by the planned cost.
Actual/Specific: inventory items are revalued at the lot/location when the by-product is issued into inventory. WIP is reduced by planned cost.

Standard Cost Method

If a by-product is valued using the Standard cost method, each by-product is assigned a cost that does not vary. By-products are issued from a job into inventory at the standard cost for the item as defined on the Items form. Adjustments are made to WIP.

Consider these attributes of by-products valued using the Standard cost method:

Standard/LIFO and Standard/FIFO: A new stack is created at the planned unit cost but the by-product is still valued using the standard cost.
Standard/Average: The average cost of the by-product is recalculated but the by-product is still valued using the standard cost.
Standard/Specific: The specific cost of the by-product is recalculated for the lot/location, but the by-product is still valued using the standard cost.

Resetting By-Product Cost Amounts

You can reset the cost of by-products to the cost amounts defined on the Item Costs form by using these BOM Roll Up utilities:

Job BOM Cost Roll Up and Estimate Job BOM Cost Roll Up: These utilities reset the by-product costs on the Estimated Materials, Job Materials, Production Schedule Item Materials, and Production Schedule Release Materials forms to the costs assigned on the Item Costs form.
Single Level Current BOM Cost Roll Up and Current BOM Cost Roll Up: These utilities reset the by-product costs on the Current Materials form to the costs assigned on the Item Costs form.