Inventory costs are based on the allocated cost, plus any subsequent processing cost. A by-product or byproduct is a secondary product derived from a production process, manufacturing process or chemical reaction; it is not the primary product or service being produced. The byproduct is a common outcome in the majority of production processes.
It often happens that along with the main output, a secondary product is also yielded. It is in a lesser quantity and also is of lower overall value as compared to the main product. 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. Thus, these leftover products, known as by-products can be sold off as independent products in the market. E.g. A crude oil refinery extracts at the end of its refining process.
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Companies must build highly specialized facilities to store this material and hire employees who can take caution in handling, transporting, and disposing of it. 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.
Alternatively, if the by-product has a market value at that split-off point, the by-product account is charged with this market value. This account’s balance can be shown on the income statement as indicated in Method 1, except that the manufacturing cost applicable to by-product inventory expensing vs capitalizing in finance should be reported in the balance sheet. The replacement cost method is commonly used in the steel industry. 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.
- It is a product created through the process of something else or from an offshoot of the original product.
- CO poisoning reverses itself after the victim breathes enough fresh air.
- Remember, CO can kill you so assume that you are breathing CO if you smell combustion gases, and go outdoors immediately.
- It is also acceptable to record these revenues as miscellaneous revenue.
- Likewise, leftover scrap metal from making cars might have some resale value as it could be sold for recycling.
That substance is Ethylene – a vital ingredient in manufacturing all the plastic products like polythene shopping bags, PVS pipes, etc. Thus, knowing the commercial importance, the company can actually sell it at lucrative prices. E.g. A car manufacturer also sells other decorative accessories like car mats, seat covers, navigation system etc.
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Smoke is the second most dangerous hazard from combustion byproducts. Smoke particles settle deep in your lungs because they are very small, 2.5 microns or less (PM-2.5). Inside the lungs, these particles interfere with oxygen processing, irritate lung tissue, and can eventually destroy the lungs. PM-2.5 are considered the most dangerous type of particulate pollution. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. 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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Examples of byproducts are manure from a feedlot operation, sawdust at a sawmill, salt from a desalination plant, and straw from a grain harvesting operation. 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.
Meaning of byproduct in English
This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. Marketing and administrative expenses may also be allocated to the by-product on some equitable basis. The balance of this account is shown in the income statement using one of the procedures outlined in Method 1.
Unfortunately not all by-products have the same salability and value as the dairy farmers’ and loggers’ operations. The 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.
He or she is interested in producing milk, but the manure is created during the process. Combustion byproducts in buildings come from heating appliances, automobiles, and tobacco smoke. This indoor pollution includes the poisonous gas such as carbon monoxide (CO), and tiny airborne particles such as soot. CO poisoning is the most common and serious combustion-safety hazard. However tobacco smoke is a leading cause of chronic respiratory diseases and lung cancer.
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A by-product is a product with a relatively small total value that is produced simultaneously with a product of greater total value. Product is a classical Latin word from productum, meaning “something produced.” The English use, to mean “anything produced,” is from the late 16th century. Byproduct, or by-product, is a compound word and is never written as two separate words. And it should never be spelled as bi-product since by- is the accepted English prefix spelling. Ask a question about your financial situation providing as much detail as possible.
When this happens, it is recorded as a separate line item on the income statement. Some byproducts are of marketable value and can be useful in certain industrial processes, whereas others are simple waste products. In this case, a discarded byproduct needs to be separately and safely disposed of. Since this disposal process can be a costly process which adds to the production expenditures already incurred, industries tend to limit byproducts.
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. 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. Hence, here the customer doesn’t have much choice but to buy the ink from the manufacturer only.
The replacement cost method is usually applied by firms whose by-products are used within the plant. 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.