A product for the economy is defined as the result obtained from the production process within a company.
The terms ‘by-products’, ‘scrap’ and ‘waste’ are used to refer to outputs with little or no value. Because different people use these different terms to refer to the same thing, we shall briefly discuss the distinction between them.Waste is a term used to describe material that has no value, or even negative value if it has to be disposed of at some cost.
Examples include gases, sawdust, smoke and other unsaleable residues from the manufacturing process. Waste presents no accounting problems because it has no sales value, and therefore it is not included in the valuation of stock.By-products, as we have already seen, are those products that have a minor sales value and that emerge incidentally from the production of the major products.
Scrap also emerges as a consequence of the joint production process, but it is distinct from by-products in the sense that it is the leftover part of raw materials, whereas by-products are different from the material that went into the production process. Metal shavings and sawdust would normally be classified as scrap, whereas minor chemicals emerging from a chemical process would normally be classified as by-products.
The term ‘scrap’ is usually limited to material that has some use, such as being sold or re-processed When a product of minor sales value is processed beyond the split-off point, it should be considered as a by-product and not scrap, although the fact that a product will not be processed beyond the split-off point does not necessarily mean that it should be considered as scrap. The major distinguishing feature is that by-products are different from the materials that went into the production process.
Accounting Treatment of By Product
The accounting procedures for scrap and by-products are fairly similar, and the accounting treatment which has already been outlined for byproducts can also be applied to scrap. However, if the sales revenue from scrap is insignificant then the revenue due from the actual production for the period should be credited to the joint process.
Characteristics of departmentalization by product
Among the main characteristics of departmentalization by products we find:
1. Address specific needs
The more diverse the products of a company, each product faces specific needs in its planning , production , distribution and marketing process. These needs are best served if each department is responsible for a single product.
2. Encourage innovation
Of course, the fact that each product depends specifically on a department generates continuous improvement processes, which stimulates innovation and creativity. Everyone in the department becomes an expert in the characteristics, uses, and manufacturing processes of each product. This causes the product to be innovative and perform better and better.
3. Focuses on the customer
In the same way, to the extent that we seek to improve and innovate the product, this means that the product increasingly satisfies the needs of the client. Therefore, customer focus must be a priority in product development.
4. Administrative autonomy
Furthermore, with this form of organization, each department functions autonomously, because all tasks are performed independently. Since each department has a budget, planning process and the application of strategies for the specific product that is in charge.
Advantages of departmentalization by product
Among the main advantages of departmentalization by product we find:
- Better control to achieve the objectives: This occurs because each department focuses all its attention and effort on a single product or service.
- Application of specific strategies:Each department applies specific strategies in order to offer the market a better product or service.
- Effective communication:The communication process is more efficient, because the information flows and is better coordinated within the same department.
- Better results:It is easier to manage commercial and financial indicators if the department is managed independently.
- There is more diversity of products:It favors the development of more and better products that are aimed at better satisfying customer needs.
