Periodic cost for recursive production
In some production processes, a finished goods output lot is consumed as a raw material in a subsequent production order. When this occurs, the system automatically extends the factor calculation through multiple production levels back to the originating purchase or transfer receipt lots. This is referred to as recursive production.
The system identifies recursive consumption automatically when the entry type of a consumption item ledger entry is Output rather than Purchase. No additional configuration is required to enable recursive tracing.
For more information about how periodic costs are calculated for production output, see Periodic cost for production output.
How recursive tracing works
The system traces the cost chain through production levels as follows:
Level 1 — first production order
Purchase or transfer receipt lots are consumed to produce an intermediate finished goods lot. The system calculates the factor for each receipt lot as follows:
Factor = Consumption quantity of the receipt lot / Total consumption quantity for the production order
Level 2 — second production order
The intermediate finished goods lot is consumed alongside additional purchase or transfer receipt lots to produce the final output lot. The system calculates inherited and direct factors as follows:
| Lot type | Factor calculation |
|---|---|
| Purchase or transfer receipt lot from Level 1 (inherited) | Factor (Level 1) × Factor of the intermediate finished goods lot (Level 2) |
| New purchase or transfer receipt lot at Level 2 (direct) | Consumption quantity of the receipt lot / Total consumption quantity for the Level 2 production order |
The sum of all factors across all levels always equals 1.000000.
Example
The following example illustrates how the system traces periodic costs through two production levels.
Item ledger entries
| Item ledger entry | Type | Item | Lot | Quantity |
|---|---|---|---|---|
| ILE-1 | Purchase Receipt | RM-0001 | LOT00001 | 256 |
| ILE-2 | Purchase Receipt | RM-0001 | LOT00002 | 156 |
| ILE-3 | Prod. Output | FG-0001 | PLOT0003 | 400 |
| ILE-4 | Prod. Consumption | RM-0001 | LOT00001 | -256 |
| ILE-5 | Prod. Consumption | RM-0001 | LOT00002 | -156 |
| ILE-6 | Purchase Receipt | RM-0001 | LOT00004 | 200 |
| ILE-7 | Prod. Output | FG-0001 | PLOT0005 | 300 |
| ILE-8 | Prod. Consumption | FG-0001 | PLOT0003 | -60 |
| ILE-9 | Prod. Consumption | RM-0001 | LOT00004 | -120 |
| ILE-10 | Sales Shipment | FG-0001 | PLOT0005 | -300 |
Factor calculation — Level 1 (PROD-00001)
| Lot | Calculation | Factor |
|---|---|---|
| LOT00001 | 256 / (256 + 156) = 256 / 412 | 0.621359 |
| LOT00002 | 156 / (256 + 156) = 156 / 412 | 0.378641 |
Factor calculation — Level 2 (PROD-00002)
| Lot | Calculation | Factor |
|---|---|---|
| PLOT0003 share | 60 / (60 + 120) = 60 / 180 | 0.333333 |
| LOT00004 (direct) | 120 / (60 + 120) = 120 / 180 | 0.666667 |
| LOT00001 (inherited) | 0.621359 × 0.333333 | 0.207120 |
| LOT00002 (inherited) | 0.378641 × 0.333333 | 0.126214 |
The Related Amount field on the Periodic Cost Lines page for each purchase or transfer receipt lot reflects its share of the final output lot storage cost traced through all production levels.