The valuation of manufactured products that are manufactured together, can be determined by using cost distribution factors. The cost distribution factors provide a means of distributing costs of materials, operations and general overhead cost between the main product and the additionally produced parts (by-products, co-products and disassembly components). When not using cost distribution, the valuation of the main product is determined by removing the standard cost (if Standard Cost is used) or current inventory value (if Weighted Average is used) of the additionally produced parts from the sum of the material, operation, and general overhead costs.
The cost distribution method requires the identification of a portion of costs for material, operation, and general overhead costs to be allocated for each produced part on a structure or a shop order with the remaining portion allocated to the main product. Separate factors are used for material, operation, and general overhead costs. The cost distribution method can be identified to be used for product structures, recipe structures and configuration structures as well as directly on the shop orders.
If cost distribution is enabled for a specific product, it will be used both in standard cost calculation and shop order cost calculation (estimated and actual cost). When using weighted average as inventory valuation method cost distribution will also be used for calculating the actual received cost for a shop order.
This document focuses on shop order cost distribution. Standard cost calculation using distribution cost is further described in Cost Calculation.
For Structure Type Disassembly, the disassembled main product will not be received when processing the shop order. The main product can be either purchased or manufactured, if the part type is purchased there is a need of a cost template that consist of both material, machine and labor cost buckets. The disassembled main product itself is used when distributing its material cost to the disassembled components. The disassembled main product is displayed on the Component Cost Distribution tab on the Product Structure page, as well as on the Product Structure Alternate tab.
The cost distribution is activated by enabling the Use Cost Distribution option for the relevant alternate on the Product Structure, Configuration Structure or Recipe Structure pages.
The value to determine how much operation cost or general overhead production cost should be allocated is defined by entering the value in the Operation Cost Distribution Factor field or General OH Cost Distribution Factor field on the Produced Parts tab of the Product Structure or Configuration Structure pages, or By-Product tab of the Recipe Structure page.
The value to determine how much component material cost that should be
allocated is defined by entering the value in the Cost Distribution Factor
field on the Component Cost Distribution tab on the
Product Structure or
Configuration Structure pages.
For recipe
structures,the value to determine how much component material cost that should be
allocated is decided by entering the value in the Cost Distribution Factor
field on the By-Product Cost Distribution tab on the
Recipe Structure page.
Please note that these distribution factors are set individually for each
component.
For structure types Manufacturing and Remanufacturing, the cost distribution factors cannot allocate more than the total costs. Therefore, the sum of each type of cost distribution factor must not exceed 100%. This means that, for a single structure, the sum of the operation cost distribution factors cannot be greater than 100%. Similarly, the sum of the general overhead distribution factors cannot be greater than 100%. For each component on the structure, the sum of the item cost distribution factors cannot be greater than 100%.
For structure type Disassembly it is possible to allocate more than 100%. The badges Total Operation Cost Distribution, Total General OH Cost Distribution and Total Cost Distribution Factor (per component), summarizes the allocation factors of each type. This gives a clear indication if more or less than 100% is allocated.
It is strongly recommended to use cost distribution method if the Structure Type is Disassembly.
During shop order cost calculations for estimated cost or weighted average actual cost, each of the shop order cost types (component, operation, or general overhead) is multiplied by the appropriate cost distribution factor to determine the allocation for each by-product, co-product and disassembly component line. Any remaining cost is allocated to the main product.
For example, suppose that product A has a by-product, B and a co-product C, and two components X and Y. The cost distribution factors are as follows:
If Use Cost Distribution is enabled, then during the shop order cost calculations, the costs would be calculated as follows:
If Use Cost Distribution is not enabled, then during the shop order cost calculations, the costs would be calculated as follows:
For example, suppose that product A has two disassembly components, B and C, and a component X. The cost distribution factors are as follows:
If Use Cost Distribution is enabled (recommended), then during the shop order cost calculations, the costs would be calculated as follows:
If Use Cost Distribution is not enabled, then during the shop order cost calculations, the costs would be calculated as follows:
Scrap factors for co-products and disassembly components can be defined in the Produced Parts tab in the product structures. When calculatiing the estimated or actual cost on a shop order scrap factor is considered after the cost distribution is performed, i.e. if a produced part is defined to take 10% of the cost and has 50% scrap factor, its total share of the total cost will still be 10% but the cost per unit will be doubled.