How can I add two finished items at once

21

I wouldn’t recommend allocating an arbitrary value to a a byproduct; it’s bad accounting.

If the other product has significant measurable value, then you need to identify the split-off point and create a WIP product and do proper costing for it.

If the other product is insignificant, create a zero valued production order. If you want to go a step further, you can estimate its NRV which is the sales price of the entire output of the byproduct less its cost to sell and allocate that using a Journal Entry like so:

Screenshot_20210820-003248~2
Screenshot_20210820-003248~21931×850 32.7 KB

1 Like
22

That’s an option but the down side is that the cost of the main product (which is an intermediary product) is higher than it should be because there is the income from the by product, which in this scenario is produced at 0 cost. Maybe the best would be to reduce the cost of the main product by the value/quantity of the raw materials that can be recovered through the sale of the by product. That way even downstream we get a good idea about the actual cost of production.

23

The value of the by-product is about 30% of the main product.
for example;
We mill one tonne of maize. We get 750kg of maize meal that is sold for about K5 per KG. The remaining by-product is sold for K1.5kg. My idea was to allocate 900kg of the raw material (maize) to the main product and 10% to the by product.
Let’s say the maize costs k3000 per tonne
We get 750kg Maize Meal valued k3500
And 250kg By product valued at k375.
The input cost for maize meal would be K2700
Input cost for by product k270.
Is that a reasonable way of allocation or is there a better way? Thanks in advance for your feedback!

24

Your allocation appears to be reasonable since it’s between 0 and the NRV.

My concerns are these:

  • Prices of the byproduct might change. This means that the BOM has to be changed everytime the price changes significantly. Manager has no BOM at the moment, but it’s already in ideas.

  • If the stock of byproduct is not kept in inventory for long, any allocation wouldn’t make any difference to your P&L, so why even bother.

  • On the other hand, if the byproduct stays for a long time in inventory, then you will have to reassess its value for price changes and obsolescence, which is a lot of unjustified work.

That’s why I wouldn’t do it though.

Most importantly, what do your auditors think?

25

Thanks a lot! Will discuss it with the auditor, it’s a new processing line.
We usually sell the byproduct within a short time, so your suggestion is probably the best.