Total cost allocation method

This article provides guidelines for using total cost allocation (TCA). TCA is a method of calculating the cost between the main formula item for a batch order and the co-products that are defined for the formula.

Total cost allocation (TCA) is a method of calculating the cost between the main formula item for a batch order and the co-products that are defined for the formula. This method is dynamic. It calculates the cost as a weighted average between the quantities that are reported as finished for the formula item and the co-products. When TCA is used, you don't have to review cost allocations for every batch order. If TCA isn't used, the formula calculation uses existing functionality.

Using TCA for coproducts

Here are some of the guidelines for using TCA for co-products:

  • If you set the Total Cost Allocation slider to Yes for a formula version, co-products must have a cost price that is more than 0 (zero). The value can be retrieved from the active cost version for the same site, or for the first site for a formula that isn't site-specific. This condition is validated when the formula is approved.

    • You don’t need to manually enter cost allocation percentages for co-products. Instead, the system automatically creates the cost allocation percentage as the average of active cost prices of co-products.
    • You don’t need to enter standard cost for non-standard cost items that are co-products. There are two types of costing versions in the system:standard cost and planned cost
    • If an item isn’t valuated by the standard cost valuation method, we recommend you use an active cost price in the planned cost version. This price is used for cost estimation, for example, BOM calculation, production cost estimation, and fallback price in the inventory valuation process.
  • If you set the Total Cost Allocation slider to Yes for the formula version and the following conditions are true, the method of cost allocation is TCA, and the percentage of cost allocation is unchanged:

    • You added co-products.
    • You used a different method of cost allocation for the co-products.
  • If you set the Total Cost Allocation slider to No for the formula version and the following conditions are true, the method of cost allocation is changed to Manual, and the percentage of cost allocation is unchanged:
    • You added co-products.
    • The percentage of cost allocation is more than 0 (zero).
  • Before you can successfully perform a formula calculation, you must estimate the percentages of cost allocation. You can complete this step either manually or by using the Estimate cost option on the Co-products page. Note: The Estimate cost option is available only when the Total Cost Allocation slider is set to Yes for the formula version. You can view the expected allocation if the batch order quantities that are reported as finished match quantities that appear on the formula.
  • When a batch order is created manually or a planned batch order is firmed, the value of the Total Cost Allocation slider for the formula version is copied to the batch order. However, you can change this setting on the batch order. If the Total Cost Allocation slider is set to No for the formula version and then changed to Yes for the batch order, the method of cost allocation for each line that was set to Manual is changed to TCA. A cost allocation of None is unchanged. If the Total Cost Allocation slider is set to Yes for the formula version and then changed to No for the batch order, the method of cost allocation for each co-product of the Production type is changed to Manual. Any estimated percentage of cost allocation is unchanged.
  • The Co-product cost allocation page shows the calculated cost allocation percentage. You can open this page from the Batch order page. This information is useful when the products and quantities that are reported differ from the scheduled or started quantities on the batch order. When the cost is complete, these new percentage allocations from TCA are shown on the Co-product cost allocation page.

Calculating the burden for byproducts

The By-product cost allocation field on the Co-products page is an enumerator field that is used only for by-products. For co-products, the value of this field is always None. For by-product lines, this field determines how the cost amount for the by-product line is added to the total cost of the production. The following options are available:

  • None ─ No amount is added to the total cost of the production for this by-product line.
  • Percent ─ The cost amount is calculated as a percentage of the total cost of raw materials that are consumed in the production. The percentage that is used for the calculation is entered in the field.
  • Per series ─ The cost amount is calculated as an amount per standard batch size of the production order. This amount is independent of the reported quantity in the production. The amount that is used for the calculation is entered in the field.
  • Per quantity ─ The cost amount is calculated as an amount per reported quantity of the formula item in the production. The amount that is used for the calculation is entered in the field.