The manufacture of co-products can produce remaining materials (by-products) in a production process automatically. The costs for these by-products are calculated with the net realizable-value method. This method determines the cost of goods manufactured for the primary product by deducting the costs of the by-products from the total cost of the production process. The costs of the by-products thus represent a reduction in the costs of the primary product or process.

The Co-product indicator is not selected for the BOM item under which the by-product is entered. Instead, a negative quantity is entered.

In the material list or BOM for the primary product or process, you enter the by-product with a negative quantity. If the by-product is indicated as being relevant to costing, the total cost of the process is reduced by the costs of the by-products.

The cost of goods manufactured for a by-product can be calculated in two ways:

• A price from the material master is used. The costs of goods manufactured for the by-products are arrived at by multiplying the output quantity by the price, and appear in the itemization of the cost estimate as negative values.

• The by-product can be manufactured using an alternative production structure, and a cost estimate for the by-product already exists. In this case, this cost components of the cost component split for the by-product are subtracted. The cost of goods manufactured for the by-products is arrived at by multiplying the output quantity by the costing results of the by-product from the alternative cost estimate.