Proportional Cost Allocation for By-Products

The proportional cost allocation feature enables component and operation costs to be distributed across all production order outputs, including by-products, based on user-defined allocation percentages. This feature extends the existing by-production functionality without altering the base calculation and posting logic.

By default, production costs (components and operations) are posted only to the main item on the first production order line. With proportional cost allocation, you can specify allocation percentages for by-products, allowing costs to be distributed proportionally across all outputs.

Use proportional cost allocation when:

By-products have significant value and should carry a portion of production costs.
Cost distribution is required for accurate inventory valuation.
Multiple outputs need to reflect their share of production expenses.
Financial reporting requires proportional cost allocation across all production outputs.

Define Cost Allocation Defaults

In the By-Production page, the Cost Allocation % field is available on both the General FastTab and the Lines FastTab. These fields allow you to define the default allocation percentages for the main item and each by-product. For more information, see Configuration.

Apply Cost Allocation in Production Orders

In the production order lines, the Cost Allocation % field indicates the default values for each by-product line based on setup in the by-production. You can modify these values directly to suit specific production scenarios.

The Cost Allocation % field is only editable for by-product lines – the main item line cannot be edited and is updated automatically based on the remaining percentage; however, it cannot be zero, negative, or exceed 100.

Note

This field is only visible in production orders for by-production items. If by-products are added manually using the Add By-Product function to a production order for an item that does not have a by-production setup, the Cost Allocation % field will not be shown and proportional cost allocation cannot be used. To enable cost allocation, define the by-production relationship in the By-Production page before creating the production order.

Cost Allocation Calculation

When Cost Allocation % values are specified:

Component costs are allocated proportionally based on the percentages.
Operation costs are allocated proportionally based on the percentages.
The main item receives the remaining cost allocation.
The existing base calculation and posting logic remains unchanged.

Example

A production order produces:

Main Item: 100 units
By-Product A: 20 units
By-Product B: 10 units

Total production cost: 1000

If you set:

By-Product A: Cost Allocation % = 15%
By-Product B: Cost Allocation % = 10%

The cost distribution will be:

Main Item: 750 (75% of 1000)
By-Product A: 150 (15% of 1000)
By-Product B: 100 (10% of 1000)