By-Products and Main Products:
- Define and explain By-Products.
Definition and Explanation of By Products:
The term “by product” is generally used to denote one or more products of relatively small total value that are produced simultaneously with a product of greater total value. The product with the greater value, commonly called the “main product“, is usually produced in greater quantities than the by products. Ordinarily, the manufacturer has only limited control over the quantity of the by product that comes into existence. However, the introduction of more advanced engineering methods, such as in the petroleum industry, has permitted greater control over the quantity of residual products. In fact, one company, which formerly paid a trucker to haul away and dump certain waste materials, discovered that the waste was valuable as fertilizer, and this by product is now an additional source of income for the entire industry.
Nature of By-Products:
The accounting treatment of by-products necessitates a reasonably complete knowledge of the technological factors underlying their manufacture, since the origins of by products may vary. By-products arising from the cleansing of the main product, such as gas and tar from coke manufacture, generally have a residual value. In some cases, the by product is left over scrap or waste, such as sawdust in lumber mills. In other cases, the by product may not be the result of any manufacturing process but may arise from preparing raw materials before they are used in the manufacture of the main product. The separation of cotton seed from cotton, cores and seeds from apples, and shells from coca beans are examples of this type of product.
By product can be classified into the following two groups according to their marketable condition at the split-off point:
- Those sold in their original form without need of further processing.
- Those which require further processing in order to be saleable.
You may also be interested in other articles from “by products and joint products” chapter
- Difficulties in costing by products and joint products
- Joint Products and Joint Product Costs
- Characteristics of Joint Products and Cost
- By Products
- Recognition of Gross Revenue
- Recognition of Net Revenue
- Replacement cost method
- Market value method or reversal cost method
- The market or sales value method, based on the relative market values of the individual products.
- The quantitative or physical unit method, based on some physical measurement unit such as weight, linear measure, or volume.
- The average unit cost method.
- The weighted average method, based on a predetermined standard or index of production.