If you are manufacturing on the basis of process orders, the system uses a master recipe and the relevant material list in accordance with the parameters for the order type specified in Customizing for Production Planning - Process Industries.
The master recipe contains operations and phases. Operations consolidate several phases and are each executed on a primary resource. A phase is a self-contained work step that describes one part of the production process in detail. It uses the primary resource of the overall operation. Operations and phases can use secondary resources in addition to the primary resource. Resources are linked to cost centers and use their activity types. The sequence of steps in the production process is defined by the sequence of phases.
For each operation or phase, you plan one or more materials that are required for executing that particular step.
In process manufacturing, only the phases are relevant to costing, and not the operations. A phase contains standard values for activities. These standard values are used to determine dates, capacity requirements, and costs. You must select the Relevant to costing indicator for the phase.
If the material list contains co-products, you can add additional co-products. However, you cannot delete co-products from the material list. To check whether a material component is relevant to costing, you need to navigate from the material list to the details screen of the material. For process manufacturing without joint production, the costs are updated to the order header.
Material Flow in the Process Industry
The material flow in the process industry is as follows:
Input material:
Raw materials and semi-finished products are used in the manufacturing process. These materials debit the manufacturing order when they are withdrawn from inventory (goods issue posting).
Intra material:
Material type (INTR) is temporary and exists only between production phases within the production process. 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, an intra material may have to be put into inventory. In this case, it is valuated with a price in the material master that is selected using the valuation variant for valuating goods received.
Remaining material:
Such materials are depicted as by-products and produced during the manufacturing process.
Circulating material:
The circulating material is a catalyst and is added during the manufacturing process, but later withdrawn. You can specify in the material list whether the costs for a circulating material should be taken into account. The system selects a price for the circulating material from 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 represents the material usage costs.
If multiple products are produced during the same manufacturing process, such products are known as co-products.
Definition of Co-Product
Joint production produces several products during one manufacturing process. You can calculate standard costs, planned costs, and actual costs for individual co-products (also called joint products) in the process using a cost apportionment structure that is specified in the material master.
A co-product is a basic material that a joint process produces along with other basic materials. If a material is a co-product, you select the Co-product indicator in the Material Requirements Planning (MRP) view or costing view of the material master record.
In the material list, all co-products (both leading co-products and non-leading co-products) are items with a negative quantity. Leading co-products are called primary products. For primary products, you also select the Co-product indicator in the bill of material (BOM).
You can create material master records for process materials as well. A process material represents the production process of several co-products. An apportionment structure is specified in the material master record for the primary product or process material. From a logistical point of view, the use of process materials is not recommended.
You can flag a co-product in the material master as a fixed-price co-product. This is considered a special feature.
Definition of By-Products
The remaining materials are depicted as by-products. A by-product is manufactured automatically when another product is produced. You enter a by-product with a negative quantity in the material list of a primary product or process material. For by-products, you do not select the Co-product indicator in the material master record or in the BOM.
If the by-product is flagged as relevant to costing, the system subtracts the costs of the co-products from the manufacturing costs using the net realizable-value method. For example, the manufacturing cost of the primary product (or the other co-products) amounts to the total cost of the production process less the costs of the by-products.
In Product Cost Planning, the manufacturing costs of a by-product can be calculated in the following ways:
By using a price from the material master.
By using an apportionment structure defined in the material master of the leading co-product.
In the apportionment structure, a source structure is used, which contains positions with assignment of cost elements.
Example
A source structure contains two assignments for primary and secondary costs. In the apportionment structure, the source structure is entered and the system creates for each position of the source structure and each co-product one line in the apportionment structure. Therefore, in the bill of materials of the leading co-product, the indicator "co-product" must be set for each co-product. In the apportionment structure, an equivalence number will be entered in each line. Using the equivalence numbers, the costs can be split to the co-products. Example: The cost for the co-products T-SPC1## (Basic Paint) and T-SPC2## (Solvent) are split as follows:
| Assignment | Co-product | Valid to | Equivalence number |
| PC Primary Cost | T-SPC1## (Basic Paint) | Date: DD.MM.YYYY | 500 |
| PC Primary Cost | T-SPC2## (Solvent) | Date: DD.MM.YYYY | 7 |
| SC Secondary Cost | T-SPC1## (Basic Paint) | Date: DD.MM.YYYY | 300 |
| SC Secondary Cost | T-SPC2## (Solvent) | Date: DD.MM.YYYY | 7 |
Note
The equivalence numbers are depending on the split of the raw material quantities as defined in the bill of materials (BOM) and the plan production times as defined in the routing.
Process Order with Co-Products
In most cases, co-products are manufactured on the basis of process orders. However, joint production can also be carried out on production orders. This example uses process orders.
The system recognizes joint production from the material master record. For each co-product (including the primary product), the system generates an order item and turns on the MultItems indicator. The planned quantities and the quantities received into the inventory of the products manufactured are updated to the order item.
The following events take place in Cost Object Controlling:
The planned costs of the manufacturing order are calculated using the quantity structure specified in the manufacturing order. These costs are distributed to the co-products using the apportionment structure.
The 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 allocated to the order items using the apportionment structure. Work in process (WIP) and variances are determined at order item level. The order items are then settled to Financial Accounting (FI) and Management Accounting (CO).
You maintain the apportionment structure in the material master. Once the apportionment is assigned, it leads to splitting the settlement rule of the process order.