About co-product/by-product
A production process is often designed to produce a single output item. However, in some cases, particularly in a process manufacturing environment, a single production order can have several intended outputs. Each output can be packaged into a separate finished good or used in additional production activities. When a production process has more than one primary output item, these items are called co-products.
In addition to intended outputs, many production activities result in secondary products. While these items are not an intended result of the production process, they can still serve as a component in another production process, or even be sold directly to a customer. These secondary output items are called by-products.
Co-products, by-products, and inventory items
You typically enter an output item as a record in the program, then link it to the production bill of materials (BOM) that outlines the process for producing it. The program lets you link a single production BOM to an inventory item. In most cases this is adequate, because an output item is produced via a single defined process. The same rule applies to co-products: a co-product item must be linked to a specific co-product/by-product process.
By-products are different in that a single by-product can be produced as the result of many different production activities. As a result, it is not possible to identify a specific production BOM responsible for generating a by-product item. For this reason, by-products are unique in that they are manufactured items that do not require a link to an existing production BOM.
Costing allocation
Co-product and by-product items also differ in how the program allocates their costs. When a production process has a single output, cost allocation is straightforward. When several outputs are involved, the program must allocate the cost of production among them.
Because a by-product is a secondary item that can be produced through several processes, the process for assigning cost during production is simplified. When a by-product is reported through production, the system looks at that item's defined standard cost and assigns this value. This amount is also subtracted from the total amount used for cost allocation. Once any by-product costs are subtracted, the system allocates the remaining amount equally among the co-product items.
For example, a production order is completed resulting in two co-products and one by-product. The total cost for the production order is $10. The standard cost of the by-product item is $2, so the system assigns this cost to the by-product and subtracts this amount from the total cost, leaving $8. The program then allocates this amount among the co-products. Because there are two co-products, the program assigns a cost of $4 to each.
You can further impact the cost of co-products by assigning a cost share. By default, all co-products have a cost share of 1, but you can change these values to weight the cost of certain co-products in relation to one another. If we take the two co-products from our example and assign cost shares of 3 and 1, we indicate that the cost of the first co-product should be three times as great as the cost of the second. In this scenario, the $8 is not split evenly. Instead, the first co-product receives a cost of $6 and the second receives a cost of $2.
Planning
The co-product/by-product functionality also includes tools for supply-driven production planning. This gives a production planner the ability to create production orders based on the current availability of production materials, rather than having demand from sales orders and forecasts drive production scheduling.
See also
How to: Create New Co-Product/By-Product Processes
How to: Tie a Co-Product/By-Product Process to Inventory