الإجابة المختصرة
The batch costs the same whichever method you choose. What changes is which product carries it. Fixed percentage is simple and stable. Relative sales value follows the market. Net realisable value follows the market after finishing costs. Physical measure follows weight and ignores price. In the example below, physical measure makes the whey look like a loss-maker while the other three do not.
The batch we will cost
A joint process turns one input into two or more outputs that cannot be costed separately until they split. Allocation shares the joint cost between them.
Here is a small batch from a cheese plant. The joint cost to the point of split is 8,000, covering milk, labour and overhead. Two outputs come out.
| Output | Quantity | Price per kg | Sales value | Finishing cost | Net realisable value |
|---|---|---|---|---|---|
| Cheese | 1,000 kg | 9.00 | 9,000 | 1,800 | 7,200 |
| Whey | 3,000 kg | 1.00 | 3,000 | 1,200 | 1,800 |
| Total | 4,000 kg | 12,000 | 3,000 | 9,000 |
Illustrative figures chosen to show the arithmetic; they are not customer data and not from our test runs. Currency units are unspecified.
Finishing cost is what you spend after the split: ageing and packing the cheese, drying and packing the whey. Net realisable value (NRV) is sales value less that finishing cost.
Method 1: fixed percentage
You set the split yourself, usually from yield history or a costing decision made once a year. Suppose the plant uses 70 per cent for cheese and 30 per cent for whey.
- Cheese: 70% of 8,000 = 5,600, which is 5.60 per kg.
- Whey: 30% of 8,000 = 2,400, which is 0.80 per kg.
The split does not move when prices move, so product cost is stable and easy to explain. The risk is that nobody revisits the percentage, and it drifts away from reality.
Method 2: relative sales value
Each output takes a share equal to its share of total sales value. Cheese is 9,000 of 12,000, which is 75 per cent. Whey is 3,000 of 12,000, which is 25 per cent.
- Cheese: 75% of 8,000 = 6,000, which is 6.00 per kg.
- Whey: 25% of 8,000 = 2,000, which is 0.67 per kg.
Every output earns the same margin percentage before finishing, so no product looks unfairly profitable. It follows the market: if the whey price falls, whey takes less cost and the cheese takes more.
Method 3: net realisable value
NRV does the same as sales value, but first deducts what it costs to finish each output. Cheese NRV is 7,200 of 9,000, which is 80 per cent. Whey is 1,800 of 9,000, which is 20 per cent.
- Cheese: 80% of 8,000 = 6,400, which is 6.40 per kg.
- Whey: 20% of 8,000 = 1,600, which is 0.53 per kg.
Use it when the outputs need very different amounts of work after the split. Whey needs drying, which eats a large part of its sales value, so it carries less of the joint cost than sales value alone would give it.
Method 4: physical measure
The joint cost follows weight, volume or another unit you can measure. Cheese is 1,000 kg of 4,000 kg, which is 25 per cent. Whey is 3,000 kg of 4,000 kg, which is 75 per cent.
- Cheese: 25% of 8,000 = 2,000, which is 2.00 per kg.
- Whey: 75% of 8,000 = 6,000, which is 2.00 per kg.
Every kilo costs the same, regardless of price. That is honest when the outputs are close in value, such as grades of one commodity. It is misleading here: whey costs 2.00 per kg and sells for 1.00.
The four answers side by side
Every row adds up to 8,000.
| Method | Cheese | Whey | Cheese per kg | Whey per kg | Whey margin per kg before finishing |
|---|---|---|---|---|---|
| Fixed percentage 70/30 | 5,600 | 2,400 | 5.60 | 0.80 | 0.20 |
| Relative sales value | 6,000 | 2,000 | 6.00 | 0.67 | 0.33 |
| Net realisable value | 6,400 | 1,600 | 6.40 | 0.53 | 0.47 |
| Physical measure | 2,000 | 6,000 | 2.00 | 2.00 | -1.00 |
Whey margin is the 1.00 selling price less the allocated cost per kg. The first three methods keep whey positive. Physical measure puts a 3,000 loss on whey and leaves the cheese looking 4,000 cheaper than under sales value. Same milk, same labour, same day.
Which method fits which plant
- Fixed percentage: stable recipes and a costing team that reviews the percentages on a schedule.
- Relative sales value: outputs that sell at a price you can state at the split, such as dairy, milling and crushing.
- Net realisable value: outputs that need very different finishing work, so sales value overstates what each is worth.
- Physical measure: outputs that are grades of one commodity, where price tells you little and weight tells you most.
Whichever you pick, write it down per product family and apply it the same way every period. Switching method to improve a margin is the one thing auditors will notice.
In Business Central
ManufacturingFlow 365 offers all four methods in its Co-products and by-products module: fixed percentage, relative sales value, net realisable value and physical measure. Costing adds actual-cost allocation of joint cost, stage costs, and a cost sheet for every batch, so you can see the allocation per output. Separate price, mix, usage and yield variances are covered in yield, mix, usage and price variances.
Limits
The figures above are arithmetic for a teaching example, not output from the app. Exports and some planning pages have not been run, and the apps have been tested in a sandbox with demo data, not in a live plant. Choosing the method and the percentages is an accounting decision for your finance team and auditor.
See it on your process
Send us a batch with its outputs, prices and finishing costs, and we will put the four methods side by side on your numbers. Book the dairy demo scenario and we will run it in a sandbox.
Keep reading: co-product, by-product or waste explains how to classify each output before you allocate to it.