Suppose a business operates a manufacturing process which shows total production costs for the accounting period of 8,400. The process produces a main product which sells for 12.00 a unit, but also produces a waste by-product which the business can sell for 0.50 a unit. By-products play a crucial role in maximizing resource efficiency and economic viability within various industries. Their significance lies in the ability to add value to the primary production process by finding uses for materials that would otherwise be considered waste.

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Quickonomics provides free access to education on economic topics to everyone around the world. Our mission is to empower people to make better decisions for their personal success and the benefit of society. For some reason altogether beyond our conception—and man may have been a mere accident, a by-product evolved in the process. The carbonic acid used is (p. 142) a by-product, hitherto wasted, from the fermenting tuns of breweries. Byproduct is a compound word made up of the prefix bi- and the root product. The hyphenated version, by-product, is slightly more popular than the unhyphenated spelling, but both are considered correct.

Wheat bran and germ, for instance, can be used as ingredients in animal feed or as a nutritious addition to human foods, adding fiber and vitamins. The production cost is reduced by the NRV of the byproducts which is added to the by-product inventory. In this accounting period the revenue from the byproduct is calculated as follows. Using the sales method the byproduct value is calculated and included in revenue when the by-product is sold.

The primary product is flour, which is the main goal of the milling process. However, during milling, several by-products are also produced, such as wheat bran, wheat germ, and wheat shorts. These by-products are not the main focus of wheat milling but are valuable in their own right.

1. The main products of this industry are whole logs, but every tree has branches and smaller sections that can’t be used as full logs.
2. The primary product is flour, which is the main goal of the milling process.
3. There aren’t any different raw materials or processes used for the same.
4. Some by-products are simply waste that can’t be used for anything.
5. For some reason altogether beyond our conception—and man may have been a mere accident, a by-product evolved in the process.

Using the sales method, when the 200 units are sold, the value is included as part of the revenue of the business, and again an account receivable is established. The balance of the by-product units (100) remain in inventory until sold in the future. A byproduct, also spelled by-product, is a secondary or additional product created by an initial process, behavior, or task. A byproduct may be an unintended, but not necessarily unwelcome, result of an initial process. For instance, the grape seed oil is a byproduct of the winemaking process, and molasses is a byproduct of the refining of sugar.

Methods of Accounting for a Byproduct

Environmental regulations can also impact how by-products must be handled, especially if they are considered hazardous. Companies must navigate these challenges to ensure that by-product management contributes positively to their economic and sustainability goals. Yes, there are scenarios where by-products can attain greater market value than the primary products. This often occurs when market demand shifts or when innovative uses for by-products are developed.

Product is a classical Latin word from productum, meaning “something produced.” The English use, to mean “anything produced,” is from the late 16th century. Let’s take a look at the etymology of the word byproduct and how to use it properly in speech and writing. Danielle McLeod is a highly qualified secondary English Language Arts Instructor who brings a diverse educational background to her classroom. With degrees in science, English, and literacy, she has worked to create cross-curricular materials to bridge learning gaps and help students focus on effective writing and speech techniques. 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.

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Some by-products are simply waste that can’t be used for anything. The how to keep accounting records for a small restaurant chron com plant generates electricity using a nuclear process that produces nuclear waste. Not only is this material not salable, it is hazardous to store and dispose of. Companies must build highly specialized facilities to store this material and hire employees who can take caution in handling, transporting, and disposing of it. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.

Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about. So here, the company has to incur those expenses in waste disposal as per the legal requirements and write-off these expenses in the regular profit and loss account. Generally, any company will follow one or more pricing strategies for their product mix. These pricing strategies need to be referred so that we can understand pricing later on. 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.

Dairy farmers breed and raise cows to produce milk in order to sell it to grocery stores, restaurants, and distributors. He or she is interested in producing milk, but the manure is created during the process. The remaining units are not reflected in the inventory of the business and will only be recognized when sold at some future date.

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To maintain the performance of the printer, it is advisable that the customer uses the printing ink from the same manufacturer. Hence, here the customer doesn’t have much choice but to buy the ink from the manufacturer only. So, the manufacturer can afford to price the ink at premium levels as his customer base is almost guaranteed. E.g. A car manufacturer also sells other decorative accessories like car mats, seat covers, navigation system etc. There is no compulsion on the customer to purchase these but buying them from the manufacturer provides one excellent, seamless product package. Thus, the company has to price these accessories at attractive, competitive prices so that the customer can’t resist the offer.

It should be noted that as the total NRV has already been reflected in the income statement when the by-product was produced, the sale is dealt with as a balance sheet transaction . Using the production method, the byproduct net realizable value (NRV) is calculated at the time of production as follows. By applying the two methods described above, the following comparative income statements can be produced.

Their management, when done correctly, not only supports economic growth but also promotes sustainability and environmental stewardship by reducing waste and finding value in what was once considered unusable. It should be noted that there is also remaining inventory of the byproduct, under the production method this is not recognized in deferred revenue definition the income statement. The sales method of accounting for byproducts has the following features. E.g. A printer manufacturer sells color ink refills for the printer.

These leftover products may not be as valuable as the main product, but they too have some economic value. Thus, these leftover products, known as by-products can be sold off as independent products in the market. Production costs equal to this amount (150) are allocated to the byproduct inventory, this reduces the production costs for the main product to a net amount of 8,250. Thus, pricing the by-products is an essential strategy for the business. Another example is the petroleum industry, where crude oil refining results in a range of by-products alongside the main products like gasoline and diesel. These by-products include asphalt, paraffin wax, and petroleum coke, each finding applications in road construction, candle making, and as a fuel source, respectively.