7.3 Coefficient Method

The Coefficient Method applies to companies that produce similar products with different sizes or specifications. For example, glass bottles of 1L, 0.5L, and 250ml. One product is selected as the standard product, and other products are converted by coefficient.

Example: Product A (1L) is the standard product (coefficient = 1), Product B (0.5L) has coefficient = 0.6, and Product C (250ml) has coefficient = 0.3.

• Production in the period: A = 500 units, B = 800 units, C = 1,200 units

• Converted to standard products: 500 x 1 + 800 x 0.6 + 1,200 x 0.3 = 500 + 480 + 360 = 1,340 standard units

The process includes 9 steps:

Step 1 — Select the standard product and declare coefficients

Declare the conversion coefficient for each product compared with the standard product. The system supports Excel import.

Step 2 — Summarize finished goods produced in the period

The system summarizes finished goods warehouse receipts.

Step 3 — Summarize WIP and convert to equivalent finished goods

Enter ending WIP quantity and completion rate.

Step 4 — Calculate products manufactured in the period

Products manufactured in the period = Finished goods + Ending WIP - Beginning WIP

Step 5 — Convert products to standard products

Multiply the manufactured quantity by the conversion coefficient declared in Step 1.

Step 6 — Calculate the cost of the standard product

Standard product cost = (Beginning WIP + Costs incurred) / (Quantity produced in period + Beginning WIP quantity)

Step 7 — Recalculate cost for each product type

Multiply the standard product cost by each product's conversion coefficient.

Step 8 — Calculate ending WIP value

Ending WIP value = Equivalent finished goods x Standard product unit cost

Step 9 — Determine finished goods receipt value

Finished goods receipt value = Beginning WIP + Production costs incurred - Ending WIP

Note: For other costing methods, see Costing.