By-Product
A secondary output of a manufacturing process that has minor sales value compared to the main product and is produced incidentally, not by design.
What is By-Product?
A by-product is a secondary product that emerges incidentally from the production of a main product and has relatively minor economic value compared to the primary output. Unlike joint products — where all outputs have significant value — by-products are unintended outputs that arise naturally from the production process. Accounting for by-products involves either recognizing any proceeds from their sale as other income or using the proceeds to reduce the cost of the main product. Common examples include sawdust and wood chips from lumber milling, molasses from sugar refining, and lanolin from wool processing. The distinction between a joint product and a by-product is partly subjective and based on the relative value of the outputs.
Example
A lumber mill's primary output is finished planks, but the milling process also generates sawdust and wood chips. The mill sells the sawdust for $8,000 per month to a particle board manufacturer. Under the net revenue method, this $8,000 reduces the cost of lumber production rather than being shown as separate revenue.