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.
Some by-products are simply waste that can’t be used for anything. 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. Companies must build highly specialized facilities to store this material and hire got an concerning email from turbotax 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.
- Thus, a sale of a By-Product can be beneficial to the business if that is priced correctly and at optimum levels by the business.
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Can you solve 4 words at once?
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. This is a well-used and recognized word in the English language, and knowing its proper use and spelling is essential.
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.
Company
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 number of units of the main product and by-product produced and sold during the accounting period are shown in the table below. 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. This gives a much needed competitive advantage to non current liabilities examples the business in the market.
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.
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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.
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.
Due to the minimal value of the by-product, an analysis would show that the costs of complying with GAAP would far outweigh the benefits of doing so. There aren’t any different raw materials or processes used for the same. To sell it in the market, some processing may be done on it, if required. A manufacturing process will nearly always result in an unintended ancillary byproduct being produced. These byproducts may be regarded as waste and have zero value or might be useful products in themselves, but having a minimal value relative to the main or joint products generated by the process. Many times, the production process results in the creation of Leftover products.
As discussed in the example above, Ethylene is very valuable and it can be sold at premium prices and the profits earned can be used for capacity building for the mainstream business. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. Unfortunately not all by-products have the same salability and value as the dairy farmers’ and loggers’ operations.
Byproduct Accounting Example
There are two methods of accounting for a byproduct known as the production method and the sales method. The production method recognizes the value of the by-product when it is produced, and the sales method recognizes the value when the by-product is sold. This income is too insignificant to be accounted for under a separate head. Since the accounting impact of the byproduct is minimal the question arises as to how to account for any value the product has and any disposal value generated when the product is sold.
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.
