By-Product Definition

Table of contents :

  • By-Product Definition
    • Main product
    • Joint product (joint product)
  • Side Method
    • Method 1
    • Method 2
    • Method 3
    • Method 4
  • Production Cost Allocation Method
    • 1). Full Costing
    • 2). Variable Costing
    • Share this:

By-Product Definition

By product (by product) – Generally used to define a product with a relatively small total value and is also produced simultaneously or simultaneously with other products of greater value.

The product with a greater total value is generally referred to as the main product.

Main product

Generally produced in larger quantities than byproducts.

Typically, producers have little control over the amount of by-products that are produced. with the exception, the introduction of more advanced engineering methods,

Examples such as those used in the petroleum industry, have allowed greater control of the amount of residues as well as other by-products.

For example , a company that hires a truck to transport certain materials finds that the waste material can be used as fertilizer. These by-products are now another source of income for the industry.

Joint product (joint product)

produced simultaneously through a process or several general processes, where in each product produced from the process has more than just a nominal value.

The production process is simultaneous because it produces all of these products without exception.

An increase in the output of one product will inevitably lead to an increase in the quantity of the product or other products and vice versa, although not necessarily in the same proportion.

Side Method

The methods for calculating the cost of byproducts fall into two categories, the following is an explanation.

 

Also Read:   Understanding ISO

 

  1. The first category, the combined product costs will not be allocated to by-products. In this category there are two methods, namely:

Method 1

Proceeds from the sale of these by-products will be directly included in the income statement as one of these four categories:

a). Other income
b). Additional sales revenue
c). reduction of the cost of goods sold from the main product
d). reduction of the total cost of the main product.

Method 2

The proceeds from the sale of the by-product will be reduced by marketing sales costs as well as general and administrative costs of the by-product, then it will be reduced again by further processing costs of the by-product.

The proceeds from the sale will be entered in the income statement as one of four categories, for example like the first method mentioned above.

  1. The second category for calculating the cost of byproducts, a portion of the cost of the combined product is allocated to byproducts. This allocation of combined costs is similar to the treatment of the combined product.

The value of inventories is based on the amount of combined costs allocated and added by further processing costs after the split point. In this category, there are two kinds of methods used, namely as follows:

Method 3

which is one of the replacement cost methods

Method 4

is a market value method, also known as the reversal cost method.

Production Cost Allocation Method

Below is the production cost allocation method

1). Full Costing

Full costing is a method of determining the cost of goods manufactured which takes into account all the elements of production costs into the cost of production which consists of raw material costs, direct labor costs and factory overhead costs, both variable and fixed.

Also Read:   Understanding BEP (Break Even Point)

 

2). Variable Costing

Variable costing is one of the methods of determining the cost of goods manufactured which only takes into account the cost of production with variable behavior into the cost of production which consists of raw material costs, direct labor costs and also variable factory overhead costs.

 

Leave a Comment