Welcome to the tutorial about SAP co-products and by-products. This tutorial is part of our SAP PP course. In this tutorial, we are going to learn what are co-products and by-products, what is the difference between them, business examples of co-products and by-products, and SAP settings relevant to them.
Co-products are materials which are produced in one production process. That is, more than one final product will come out from a production process. These products will be part of the financial reporting. Any of these products will be considered as “Primary co-product” and all other products will be known as secondary co-products. Production process which gives co-products is called as “Join Production”.
By-product is an output from a production process which can be useful/sellable or sometime can be waste.
Business Example of SAP Co-Products and By-Products
Consider the Foundry Industry which manufactures castings from liquid/molten metal. Castings A and B are molded from the same mold pattern. These are intention products for this process and there are also metal wastes produced from operations like fettling and runner raiser removal process. Here, castings A and B are known as co-products and metal wastes are known as by-products.
SAP Co-Product Vs By-Product
To have a better understanding of differences between co-products and by-products, let’s compare them in a table.
|SAP Co-Product||SAP By-Product|
|Costing||Costing is based on apportionment structure defined in primary co-product.||Costing based on net realizable value.|
|BOM Settings||Co-products have negative sign along with co-product indicator in BOM.||By-products have only negative sign.|
|Financial Report||Co-products influences on financial reporting.||By-products will not have any influences on financial reporting.|
Material Master Settings
SAP co-products should have a special indicator in their material masters in MRP 2 view. In our example for materials casting A and casting B as shown on the screenshot below.
On the other hand, for the by-products this co-product indicator need not to be set.
Bill of Material for Primary Co-Product
In this example, any one of the castings will be consider as a primary co-product (casting A) and another one is the secondary co-product (casting B) and bill of material (BOM) will be created for the main co-product only.
Here, the assumption is that a total of 300 KG of molten metal will be used for casting A (160 KG), casting B (120 KG) and scrap from operations (20 KG).
In the bill of materials, both the secondary co-product and the by-product will be maintained with a negative sign. But the secondary co-product will have “Co-product” indicator at the item level of BOM. This indicator is not required for the by-product (called METALSCRAP in our example).
Apportionment Structure and Co-Products
Co-products are costed based on apportionment structure defined in the primary co-products.
Go to master record of a co-product and click on “Join Production” button located on MRP 2 view.
Next, assign a suitable source structure.
Then, enter proportion percentages or equivalence numbers for the co-products.
Now, let’s discuss an example of costing for co-products using apportionment structures. The products cost consists of the following components:
Production cost = Raw material cost + Activity Cost + Overhead
In the casting example, let’s say there is not overhead cost, then
Production cost = Furnace charge material cost + Operation cost
For example, let’s say
Production cost = 12.50 + 8.50 = 21 EUR
Value for Apportion = Production cost – By-product cost
Value for Apportion = 21 – 1 = 20
Apportion for Cast A = 20 * (60 / 100) = 12 EUR
Apportion for Cast B = 20 * (40 / 100) = 8 EUR
Some of co-products for which business don’t want to do costing based on an apportionment structure can be defined as “fixed price co-products”. In SAP ERP, production cost will be subtracted from fixed price co-products and by-products and remaining value will be apportioned to the other co-products:
Value to be apportioned = Total production cost – (fixed price co-product cost + by-products total cost)
Costing of By-Products
By-products can be costed based on any one of the following method (Net Realizable Value). Price will be taken directly from the material master price. So, cost of goods manufactured (COGM) for by-products will equal to:
by-product output quantity * its price from the material master record
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