Saturday, March 2, 2024

What is a By-Product? By-Products Examples and Pricing Strategies

A byproduct, also spelled by-product, is a secondary or additional product created by an initial process, behavior, or task. Byproduct means an ancillary product or secondary result of a primary process. It is a product created through the process of something else or from an offshoot of the original product. The scrap value is credited to the appropriate production overhead account; however some companies will also record the scrap value as a separate line item. The reversal cost method is based on the theory that the cost of a by-product is related to its sales value. The replacement cost method is usually applied by firms whose by-products are used within the plant.

  • It is also acceptable to record these revenues as miscellaneous revenue.
  • Companies must build highly specialized facilities to store this material and hire employees who can take caution in handling, transporting, and disposing of it.
  • Although many by-products are sold in the open market, other products (e.g., blast furnace gas and coke oven gas) are mixed and used to heat open-hearth furnaces.
  • To maintain the performance of the printer, it is advisable that the customer uses the printing ink from the same manufacturer.

A byproduct is usually unintended initially, but that doesn’t mean it is unwelcome. Many byproducts are used, such as bran and germ from flour processes, lanolin oil from wool processing, and buttermilk from butter processing. Smoke is the second most dangerous hazard from combustion byproducts.

Examples of By-Product

When this happens, it is recorded as a separate line item on the income statement. In simple terms, a byproduct is a secondary or incidental product derived during the synthesis or production of something else. It is not the primary product, rather it is a binary product yielded during the creation of the main product. The byproduct is simply a minor product whose output is an inevitable result of a particular manufacturing process; the main process is not affected or altered by this derivative.

This avoids the need to purchase certain materials from outside suppliers. Certain firms carry an account called the by-product account, to which all additional expenses are debited and all income statements are credited. As a result, total sales revenue would be $21,500 and gross profit and operating income would increase accordingly. Actions, processes, and behaviors have an initial result, but many also have a secondary reaction called a byproduct. E.g. A printer manufacturer sells color ink refills for the printer. To maintain the performance of the printer, it is advisable that the customer uses the printing ink from the same manufacturer.

Carbon Monoxide (CO)

Occupants risk CO poisoning or chronic respiratory disease caused by smoke from combustion appliances in the home or if a family member smokes. Here are the leading sources of combustion-related indoor pollutants.

Commonly Misspelled Words

The revenue received from by-product sales is debited to cash (or accounts receivable). However, this shortcoming is removed to a certain degree in Method 1 (d), although a sales value rather than a cost is deducted from the production cost of the main product. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.

The Hazard of Smoke

Thus, pricing the by-products is an essential strategy for the business. This income is too insignificant to be accounted for under a separate head. Some portion of the joint production cost is allocated to the by-product. Inventory costs are based on the allocated cost, plus any subsequent processing cost. Byproducts, or by-products, are products with relatively little value that emerge from a common process along with the main products.

Byproduct

Byproduct is a compound word made up of the prefix bi- and the root product. The best place for a smoke alarm or combination alarm is on the ceiling in the center of a room. A heating technician should inspect and maintain combustion appliances every year or two. They should measure combustion gases for CO during a service call, combustion-appliance replacement, weatherization project, or major renovation.

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The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. This involves applying the events offsetting accounting system explained in simple words credit to the production cost of the main product. The proceeds from sales of the by-product are credited to the by-product account. Any additional costs in terms of materials, labor, or factory overheads that are incurred after the split-off from the main product are charged to the by-product.

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