What is a Byproduct? Definition Meaning Example

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. 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.

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 revenue generated from the sale of this product can be used to meet some expenses of the business or bring down the costing of the main product.

• Dollar recognition depends on the stability of the market (in terms of price) and the stability of the by-product; however, control over quantities is important.
• All costs not reasonably attributable to any one product are considered period costs, and should be recorded on the income statement as sg&a (selling, general and administrative expenses).
• It is a product created through the process of something else or from an offshoot of the original product.
• Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.
• These sections are typically ground up in a wood chipper to make wood chips.
• Likewise, leftover scrap metal from making cars might have some resale value as it could be sold for recycling.

Any revenue resulting from the sale of the by-product is credited either to income or to the cost of the main product. When there are multiple products created from a production process, the byproducts can be discerned by seeing which ones have a minor resale value in comparison to the value of the other products. If there is no clear differentiation between primary products and byproducts, treat them all as primary products.

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This income is too insignificant to be accounted for under a separate head. Many times, the production process results in the creation of Leftover products. These leftover products may not be as valuable as the main product, but they too have some economic value.

We conclude this report with key actions for brands and retailers to take in order to manage and adapt to the ongoing shifts in consumer behavior. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. 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. The reversal cost method is based on the theory that the cost of a by-product is related to its sales value.

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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 main products of this industry are free invoice samples and templates for every business whole logs, but every tree has branches and smaller sections that can’t be used as full logs. These sections are typically ground up in a wood chipper to make wood chips. These are then sold to professional landscapers and home garden enthusiasts.

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Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. 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. This involves applying the events offsetting credit to the production cost of the main product.

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And it should never be spelled as bi-product since by- is the accepted English prefix spelling. These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘by-product.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies.

Download the full report to find out more about how consumer behavior is evolving into the future. Unamortized costs are not carried forward unless they can be specifically attributed to the new by-product. Otherwise, these costs remain in ending inventory until they are completely used up. It is also possible to use the total market values of the main product and the by-product at the split-off point as a basis for assigning a share of the cost prior to split-off to the by-product. The waste heat from the open hearths is reused to generate the steam required by the various production departments.

Marketing and administrative expenses may also be allocated to the by-product on some equitable basis. Method 2 recognizes the need to assign some cost to the by-product. However, it does not attempt to allocate any of the main product’s cost to the by-product. In most cases, manufacturers can exercise only a limited level of control over the quantity of the by-product that comes into existence. The product with the greater value, commonly called the main product, is usually produced in greater quantities than the by-product. Byproduct is a compound word made up of the prefix bi- and the root product.

The cost assigned to the by-product is the purchase or replacement cost existing in the market. In some cases, costs subsequent to the split-off from the main product may be offset against the revenue earned from the by-product. Let’s take a look at the etymology of the word byproduct and how to use it properly in speech and writing.