Special Requirements in Joint Production

Joint production is a production process that yields two or more products (called co-products or joint products) in a single production run. In Product Cost Controlling (CO-PC), there are a number of special processing requirements in joint production environments regarding Product Cost Planning (CO-PC-PCP) and Cost Object Controlling (CO-PC-OBJ).

In shop floor control, a manufacturing order (usually a process order) is created to manufacture co-products.

Co-products are carried in the manufacturing order in the order items.

In Cost Object Controlling, actual costs are collected on the header of the manufacturing order. At the end of the period, the actual costs on the order header are distributed to the individual order items. Work in process and variances are calculated at the order item level. The order items are then settled.

Integration

Terminology

In joint production, the system normally accesses master data of Production Planning for the Process Industries (PP-PI) such as the master recipe and materials list, or master data of Production Planning (PP). To distribute the planned and actual costs to the co-products, the system uses the apportionment structure that can be specified the material master record or in the manufacturing order itself.

Co-product

You specify that a material is a co-product by selecting the Co-product indicator in the MRP view or costing view of its master record.

Fixed-price co-product

A fixed-price co-product is a special type of co-product (see also: Fixed-Price Co-Products).

Primary product

You specify that a material is a primary product by selecting the Co-product indicator in the MRP view or costing view of its master record.

Process material

A process material is a nonstock material that is used in the system to represent the process by which co-products are produced. Instead of the primary products, you can enter a process material in the recipe header and in the order header.

Process materials have material type PROC.

By-product

A by-product is a product that is produced incidental to the production process of other products. You enter by-products in the material list of a primary product or process material with a negative quantity.

You do not set the Co-product indicator in the MRP view or costing view of the master records of by-products.

Intra material

Intra materials only exist temporarily between two processing units. Intra materials appear in the material list as items of category M, but are not costed.

If the process is interrupted because of a malfunction, however, intra materials may have to be transferred into inventory. In this case they are valuated with a price in the material master that is selected through the valuation variant for the valuation of goods received.

Intra materials have material type INTR.

Circulating material

You can specify whether the cost of a circulating material should be included in the material list. The system selects a price for the circulating material from the costing view of the material master record.

If the circulating material is flagged as relevant to costing, the material costs appear in the itemization twice: once with a plus sign and once with a minus sign. The balance is the material input costs.

Prerequisites

A number of settings in the master data (material master and BOM) must be made to enable costing in joint production.

You define whether a material is a co-product in the MRP view or costing view of its master record. The following are flagged as co-products:
- Leading co-products (called primary products)
- Nonleading co-products
Nonleading coproducts are represented in the BOM with a negative quantity. Leading co-products are called primary products. For primary products, the Co-product indicator must also be selected in the BOM.
You also can create a master record for a process material. This process material represents the production run of multiple co-products.
An apportionment structure is specified in the material master record for the primary product or process material. The equivalence numbers are usually derived from the market prices for the co-products. To see the apportionment structure, access the MRP view or the costing view in the material master record and choose Joint production. If no apportionment structure has been specified for a leading co-product or process material, the system issues an error message when a manufacturing order is created. The apportionment structure can be manually entered in the manufacturing order.
In the component Production Planning for the Process Industries (PP-PI), the apportionment structure is transferred into the material list. To view the apportionment structure in the material list, access the material list and choose Material list Extras Settlement rule . The dialog box Cost Apportionment to Co-products: Apportionment Structures appears.

An apportionment structure consists of the following:
- A key identifying the apportionment structure
- A text describing the apportionment structure
The apportionment structure specifies the following information:
- A list of co-products to which the total costs for the order are distributed
- For each co-product, which equivalence numbers are used for cost distribution
- For each co-product, the validity period of the equivalence number
The apportionment structure can specify a source structure. The source structure consists of source assignments. Each source assignment contains a group of cost elements. In the apportionment structure, you can specify the equivalencies according to which the grouped costs for each source assignment are distributed.

The system creates a settlement rule on the basis of the apportionment structure and the source structure. This settlement rule apportions the costs assigned to the order header to the order items (co-products). If you did not specify an apportionment structure in the material master record or in the material list, you must specify the equivalence numbers for apportionment in the settlement rule for the order header. In this case you cannot use a source structure.

Note

If you did not enter an apportionment structure in the material master record, you must maintain the equivalences or the percentages in the apportionment rule of the order manually.

For each co-product, the system creates a further settlement rule that passes the costs settled to the order item to stock.

End of the note.

In joint production, work in process is calculated at the order item level.

Features

Costing Without Reference to an Order

For information on the special requirements for joint production in Product Cost Planning, refer to the following:

Costing Co-Products

Quantity Structure Determination in Joint Production

Costing Primary Products

Including the Costs for By-Products

Manufacturing Orders

In joint production, a manufacturing order can be created either for the primary product (finished or semifinished product) or for the process material. The system recognizes from the material master record that the production type is joint production, and does the following:

Creates an order item for each co-product in the material list (the primary product is also a co-product)
Sets the MultiItems indicator in the order header

The planned and delivered quantities are updated in the order item.

The status DLV (delivered) is set in the order header if all items are completely delivered.

To see whether individual order items have been completely delivered, go to the process order in the material list. From the material list, go to the detailed view of the co-product and look at the indicator FinalDeliv (final delivery).

If this indicator is not selected and the settlement type is FUL, the system interprets the difference between the debit and credit as work in process.
If this indicator is selected, this order item is completely delivered. If the order item is completely delivered and the settlement type is FUL, the system interprets the difference between the debit and credit as a variance.

When you create the manufacturing order, the system generates two settlement rules:

One settlement rule is generated for the function Preliminary Settlement for Co-Products, Rework. It determines which order items are settled to, and determines which equivalence numbers are used for the settlement.

If you did not specify a source structure in the apportionment structure, the system will generate a distribution rule for each co-product. The settlement receiver is the order item. The settlement share is the equivalence number that you specified in the apportionment structure. You can change this equivalence number if necessary.
If you specified a source structure in the apportionment structure, the system generates a distribution rule for each co-product and each source assignment. The settlement receiver is the order item that was generated for the co-product when the process order was created. For each source assignment (such as material costs or internal activities), the system generates a distribution rule that specifies the equivalence number you entered in the apportionment structure of the material. You can change this equivalence number if necessary.

A further settlement rule is generated for the settlement of the order items to the material. The settlement receiver is the inventory account of the material being manufactured. The settlement share is 100%.

You can settle the items of manufacturing orders with co-products cumulatively (default value order type/plant: default rule PP1) or in each period (default value order type/plant: default rule PP2). If settlement is periodic, you cannot calculate work in process at target costs.

If full settlement is specified for the manufacturing order in joint production, status management relevant for period closing takes place at the level of the order item. For example, this means that an order item will receive the status DLV (delivered) when all planned goods receipts for the item have been entered. This has the following consequences:

The system interprets the difference between the debit and the credit as work in process as long as the order item does not have the status DLV.
The system interprets the difference between the debit and the credit as a variance if the order item has the status DLV.

Process Order for Primary Product

The primary product is the product that the process is designed to produce. The primary product is entered in the recipe header or in the order header.

The primary product must be flagged as a co-product. You use the apportionment structure in the material master record of the primary product to determine how the costs are distributed to the co-products.

Example Example

Example 1:

The leading co-product is used as the header material.

Order Header: Carbide
Item 0010	Carbide
Item 0010	Cement

The Co-product indicator in the material master record of both the carbide and the cement is selected. Since both requirements planning and product costing always refer to the carbide, the master recipe is created for the carbide. This makes the carbide the leading co-product, while the cement is considered a co-product for the production of the carbide.

End of the example.

Process Order for Process Material

You can create a process order for a process material. The costs are collected for the process order and apportioned to the co-products using equivalence numbers. You use the apportionment structure in the material master record of the process material or the primary product to specify how the costs should be apportioned to the co-products. This information is transferred to the process order and can be changed manually.

Example Example

Example 2:

A process material is used as the header material.

Order Header: Process Material PROC
Item 0010	Carbide
Item 0010	Cement

The Co-product indicator in the material master record of both the carbide and the cement is selected. Since both products have the same value, the master recipe is created for a process material rather than for the product itself. The process material represents the process in which the carbide and cement are produced. The process order also is created for the process material.

End of the example.

In the process order, order items for the carbide and the cement are generated. The co-products can be transferred into inventory. The transfer into inventory is valuated at a price from the material master record. The actual costs for the co-products are settled to inventory.

Simultaneous Costing

In joint production, actual costs are recorded at the level of the order header. To view the actual costs for each co-product, first perform the function Preliminary Settlement for Co-Products, Rework. After distributing the actual costs to the order items, you can view the actual costs for each co-product.

Goods Receipts

When you create a goods receipt for a process order, all co-products in the material list are proposed as a default. The credit posting for the goods receipt of the co-product is assigned to the relevant order item. The order item is credited with a price in the material master record, selected in accordance with the price control indicator of the material.

The order item is also credited when by-products are transferred into inventory. For the transfer of by-products into inventory, you enter a goods issue rather than a goods receipt. When you enter the goods issue, enter the following in the By-prod field:

Enter 1 if you want all items in a reservation to be proposed.
Enter 2 if you want only the by-products in a reservation to be proposed.

Using this entry, the system determines movement type 531 (inward movement of by-product).

Note Note

When you post the goods issue for the order or for the reservation, the By-prod field appears in the dialog box Reference: Order or Reference: Reservation.

End of the note.

Period-End Closing

Preliminary Settlement for Co-Products, Rework

In joint production, actual costs of the production process are collected on the header of the manufacturing order. During the period-end closing process you can distribute the actual costs from the order header to the order items. The system distributes the costs using the equivalence numbers in the apportionment structure. It may also use the source structure.

Preliminary Settlement for Co-Products, Rework Is Based on Apportionment Structure and Source Structure

This graphic is explained in the accompanying text.

Work in Process in Joint Production

In joint production, work in process is calculated at the order item level.

The work in process is always valuated at actual costs. The system interprets the difference on the order items as work in process until all order items are completely delivered.

Variance Calculation

You can calculate variances for co-products. This enables you to analyze the causes of differences between the target costs and the actual costs for co-products in Cost Object Controlling. The variance calculation function assigns the difference between target cost and actual cost to variance categories, broken down into cost elements and (if applicable) showing the origin. The variance categories indicate where the cause of the variance lies (such as input price variance).

Variances for fixed-price co-products are calculated only in target cost version 0. Definitions:

Target cost = Actual cost (debit side)

Target credit = Confirmed quantity x Standard price (fixed price)

In joint production, variances are calculated at the order item level.

When all items of the order have been delivered, the order header receives the status DLV (delivered). The items of the order are not included in the variance calculation process until the order header receives this status.

For fixed-price co-products, variances can only be calculated on the output side, such as when the fixed price was adjusted between the time of the goods receipt (actual credit) and the point when variance calculation was performed, due to new circumstances.

Settlement

The actual costs are distributed from order header to the order items. You use the function Preliminary Settlement for Co-Products, Rework for this.

The individual order items settle the difference between debit and credit of the order item to inventory. The order items are debited by the Preliminary Settlement for Co-Products, Rework function. The order items are credited by the goods receipt postings.

The order items are settled to the material according to a settlement rule. The system generates this settlement rule automatically when the manufacturing order is created. You can display this settlement rule for settlement to material in the manufacturing order in the Co-product view of the material.

Note Note

Preliminary Settlement for Co-Products, Rework also is performed on the basis of a settlement rule. You can view this settlement rule in the manufacturing order. To do this, access the settlement rule for the order header.

End of the note.

If you are using Profitability Analysis (CO-PA), you can also settle the variances to a profitability segment.

In joint production, settlement is therefore performed at the order item level. You can use either cumulative or periodic settlement for the manufacturing orders with which co-products are produced. To do this, you specify default rule PP1 as the default value in the order type (Production Material Full Settlement) or default rule PP2 (Production Material Periodic Settlement).

Settlement of Co-Products

This graphic is explained in the accompanying text.

The settlement rule for the manufacturing order is generated on the basis of the default rule. The settlement rule contains the distribution rule. This distribution rule is 100% to material and also contains the settlement type, which can be either PER (periodic) or FUL (full settlement) depending on the default rule.

You can change the settlement rule for the order item such that part of the cost of a co-product is passed on to a cost center or G/L account.

Assignment to Cost Object Hierarchy

Use

You can assign manufacturing orders for co-products to a cost object hierarchy. You use a cost object hierarchy when you cannot (or do not want to) assign certain costs to particular orders. Cost object hierarchies enable you to assign costs by product group or responsibility area, for example.

Example Example

One by-product incurs further processing costs. Another by-product incurs disposal costs. You assign these costs to a cost object hierarchy. At the end of the period, you distribute the actual costs to the manufacturing orders assigned to the cost object hierarchy.

End of the example.

Prerequisites

A prerequisite for the assignment of manufacturing orders with co-products to a cost object hierarchy is that you have specified in the cost object category in Customizing for Product Cost by Period that distribution is active for the cost object hierarchy. If distribution is active for the cost object hierarchy, at the end of the period the actual costs assigned to the cost object hierarchy are distributed to the assigned orders. Distribution for the cost object hierarchy distributes the actual costs assigned to the cost object hierarchy to the orders headers of the assigned manufacturing orders. The Preliminary Settlement for Co-Products, Rework function distributes to the individual order items the actual costs distributed to the order header together with the actual costs posted to the order header. You then perform variance calculation and settlement at the level of the order items of the manufacturing orders.

You can only assign manufacturing orders to a cost object hierarchy if the manufacturing orders are settled by period. This means that the default value in the order type must be default rule PP2 (Production Material Periodic Settlement).

You can assign the following combinations to the lowest nodes of the cost object hierarchy:

Material/plant
You can assign a co-product to each of the lowest nodes in the cost object hierarchy.

It is possible for multiple co-products to be generated in a manufacturing order, and for these co-products to be assigned to different cost object nodes. In this case the system assigns the manufacturing order to the cost object node to which the material is assigned that is listed in the first order item of the manufacturing order.
Material/plant/production process
You assign the combination material/plant/production process in cases such as when you have multiple production versions for a material or joint production process and you want to assign the production versions to different cost object nodes in the hierarchy.

Example
The production versions are produced on different production lines. Suppose you want to collect the costs by production line. You create a cost object node for each line and assign production processes to these cost object nodes. The Controlling level that determines the characteristics of the production processes is Production Version.

In joint production, the system only creates a production process automatically if the application component Actual Costing/Material Ledger is active.

In joint production, multiple materials (the co-products) are produced in a single production process. For each co-product, the system generates a procurement alternative when the product is delivered to inventory.

If the application component Actual Costing/Material Ledger is not active, you can create the production process for the cost object hierarchy manually and then assign it to one of the lowest cost object nodes in the cost object hierarchy. The system assigns the manufacturing order that has the same characteristic values as a particular production process to the cost object node to which that production process is assigned.

End of the example.

Features

In joint production, you can only calculate work in process at actual costs. If you assign the manufacturing orders with which you manufacture co-products to a cost object hierarchy, you cannot calculate work in process for these manufacturing orders because all manufacturing orders assigned to a cost object hierarchy are settled by period and therefore the work in process is calculated at target costs. In joint production, however, it is not possible to calculate work in process at target costs.

If you assign co-products to a cost object hierarchy, the distribution function distributes the actual costs for the cost object hierarchy to the order headers of the assigned co-products. This distribution is performed according to the target costs calculated by the system for the order items and dynamically summarized to the order headers. Then the target costs are summarized from the bottom up across all levels of the cost object hierarchy. After target cost summarization, the actual costs are distributed from the top downwards in accordance with the target costs for each hierarchy level. The actual costs are distributed to the order header of the manufacturing orders. To distribute the costs from the order header to the individual co-products, you then use the Preliminary Settlement for Co-Products, Rework function. If you have assigned fixed-price co-products to a cost object hierarchy, the actual costs are not distributed to these fixed-price co-products. Distribution for the cost object hierarchy and the Preliminary Settlement for Co-Products, Rework function are performed by original cost element or with reference to the origin group or origin. There is only a target credit for the fixed-price co-product, and no target debit. The summarization of target costs to the order header is in accordance with the target debit to ensure that subsequent distribution uses the original cost element. Therefore, no target costs are summarized on the order header for fixed-price co-products. The actual costs of the joint production process are distributed in accordance with the target costs of all co-products that are not fixed-price co-products. This follows the concept of fixed-price co-products, according to which fixed-price co-products are always carried at the manually entered price and not debited with additional costs.

Joint Production in Conjunction with Application Component Actual Costing / Material Ledger

If the application component Actual Costing / Material Ledger is active, the following objects are always created:

A production process that is linked to the order header
A procurement alternative for each co-product

Constraints

You cannot use product cost collectors in joint production.
You cannot calculate work in process at target costs in joint production.
If you are using collective orders, co-products are only allowed in the leading order

More Information

Product Cost by Period or Product Cost by Order?

Master Data of PP-PI in Product Cost Controlling

For information on cost object hierarchies, see the following document:

Product Cost by Period

For information on manufacturing orders in Cost Object Controlling, see the following document:

Product Cost by Order

For information on how costs in joint production are displayed in the Product Cost Controlling Information System, see the document Product Cost Controlling Information System, and in particular the following sections:

Special Requirements in Joint Production (in the information system)

Selection Parameters for Order Selection

Order Selection

Summarization Hierarchy

For detailed information on the master data of PP-PI, refer to the documentation Production Planning for the Process Industries