Cost Accounting of Parallel Work Order Operations Using Precedence Constraints

In Cost Accounting, you can cost your transactions and calculate your product costs when the work order operations are executed in parallel. Work definitions can define operation dependencies using transfer percentage to control how quantities flow from one operation to another. You can accurately cost work orders with parallel operations in both process and discrete manufacturing, across all cost methods.

This table provides a high-level overview of how a work order with parallel operations is costed:

Costing Factor	Process Manufacturing	Discrete Manufacturing
Batch Type	Notional and calculated batch	N/A
Quantity Transfer Percentage (Manufacturing)	Defined	Not defined; entire quantity moves through each operation
Cost Accounting Transfer Percentage (Costing)	Same as Manufacturing transfer percentage	Notional transfer percentage, evenly split across parallel operations
Output Costs at Close	Output cost reflects transfer percentage-based start cost and carry-forward cost across parallel operations	Output cost reflects notional transfer percentage-based start cost and carry-forward cost across parallel operations
Accumulated WIP (Used for valuing scrap and product completions before close)	Accumulated WIP includes prior operation costs split across parallel operations using the defined transfer percentage	Accumulated WIP includes prior operation costs split across parallel operations using the notional transfer percentage
Scrap Cost Before Close	Scrap absorbs full current operation cost and prior operation costs to the extent of the transfer percentage	Scrap absorbs full current operation cost and prior operation costs only to the extent of the notional transfer percentage
Output Cost Before Close	Output cost reflects accumulated WIP after transfer percentage-based allocation	Output cost reflects accumulated WIP after notional transfer percentage allocation

When parallel operations are enabled on a work order, costing logic applies the transfer percentage while calculating the operation-level start cost and accumulated WIP. This impacts the output costs and scrap costs generated from the operation.

Let’s consider this example to understand how a work order with parallel operations is costed across different business flows.

This table describes the operation dependencies defined for a work definition:

From Operation	To Operation	Transfer Percentage
10	20	50%
10	30	50%
20	40	100%
30	40	100%
40	Null	Null

This table describe the input costs of the work order:

Input Quantity	Unit Cost	Input Cost
10	$10	$100
25	$20	$500
20	$10	$200
10	$25	$250

This table describe the products of the work order, which are resulting from operation 20 and 30:

Operation	Product Type	Cost Allocation Factor	Cost Allocation	Product Quantity
10	-	-	-	-
20	Primary product	Variable	0.8	4
30	By-product	Fixed	10	10
40	-	-	-	-

Based on this scenario, let’s see how costs are calculated for parallel work order operations using precedence constraints, across process and discrete manufacturing.

Process Manufacturing Work Orders

With parallel operations enabled for notional batch quantity, this table shows how costs are calculated for process manufacturing:

Operation	Start Quantity	Scrap Quantity	End Quantity	Input Costs	Product Quantity	Unit Cost of Product	Start Cost (Previous operation)	Input Costs	Scrap Cost	Output Cost of Operation	Carry Forward Cost	Total Output Cost	Unit Cost of Product
10	100	10	90	$100	0	-	$0	$100	$10	$0	$90	-	-
20 (parallel)	45	0	45	$500	4	-	$45	$500	$0	$436	$109	$1175.11	$293.77
30 (parallel)	45	10	35	$200	10	$10	$45	$200	$54.44	$100	$90.55	$100	$10
40	80	0	80	$250	0	-	$199.55	$250	$0	$0	$449.55	-	-

Let’s look at cost calculations for notional batch quantity in detail:

• For the starting operation (Operation 10), the Start Cost is 0.
• On split from Operation 10 into parallel operations:
  • Start Cost of Operation 20 = Carry-Forward Cost of Operation 10 * Transfer Percentage (Op 10 to Op 20)
  • Start Cost of Operation 30 = Carry-Forward Cost of Operation 10 * Transfer Percentage (Op 10 to Op 30)
• On merge of parallel operations:
  • Operation 20 and Operation 30 merge at Operation 40.
  • Start Cost of Operation 40 = Carry-Forward Cost of Operation 20 + Carry-Forward Cost of Operation 30

The same split or merge logic is used whether batch quantity is notional or calculated, and it also applies when costing is derived using Accumulated WIP.

Discrete Manufacturing Work Order

With parallel operations enabled for discrete manufacturing, this table illustrates how costs are calculated:

Operation	Start Quantity	Scrap Quantity	End Quantity	Input Costs	Product Quantity	Unit Cost of Product	Start Cost (Previous operation)	Input Costs	Scrap Cost	Output Cost of Operation	Carry Forward Cost
10	100	0	100	$100	0	$0	$0	$100	$0	$0	$100
20 (parallel)	100	0	100	$500	4	$10	$50	$500	$0	$40	$510
30 (parallel)	100	10	90	$200	0	$0	$50	$200	$25	$0	$225
40	90	0	90	$250	0	$0	$735	$250	$0	$985	$0

For discrete work orders, transfer percentages aren't explicitly defined in manufacturing when parallel operations are enabled. However, to ensure accurate cost calculations, a notional costing transfer percentage is applied. The notional transfer percentage is distributed equally across the parallel operations. For example, if there are three parallel operations, each operation is assigned a transfer percentage of 33.33%.

Similar to process manufacturing work orders:

• On split, the start cost of each parallel operation is calculated as the carry-forward cost of the parent operation multiplied by its respective transfer percentage.

• On merge, the start cost of the merged operation is calculated as the sum of the carry-forward costs of the merging operations.

• Same logic is applied for calculating the cost of a work order using Accumulated WIP.

Considerations When Costing Work Orders with Parallel Operations

• The primary difference between how work orders are costed in process manufacturing and discrete manufacturing is the handling of transfer percentages. For process manufacturing, costing uses the transfer percentages defined in Manufacturing. For discrete manufacturing, because Manufacturing supports parallel operations but doesn't define transfer percentages, costing derives a notional transfer percentage to ensure accurate cost calculations.

• For discrete work orders, only in parallel operations, scrap is treated as distinct to the operation in which it is reported. Accordingly, scrap in a parallel operation absorbs 100% of the cost incurred within that operation and prior operation costs only to the extent of the transfer percentage. It doesn't absorb costs from other parallel operations. If scrap needs to be accounted for across multiple parallel operations, a workaround is to report the scrap in an ad-hoc operation after the parallel operation with no components or resources issued to ensure the cost is appropriately absorbed.

• With transfer percentage, scrap and product costs are calculated for both process and discrete manufacturing work orders as described here:

  • Scrap Cost (parallel operation) = 100% of current operation cost + { (Prior operation carry-forward cost * Transfer percentage) * (Scrap quantity ) / (Scrap quantity + Completed quantity) }

  • Product Cost (parallel operation) = 100% of current operation cost + { (Prior operation carry-forward cost * Transfer percentage) - (Scrap cost of the operation * Cost allocation factor) }