By-products
In one sentenceSecondary products that come out of the same production process and have a small sales value compared with the main product, such as sawdust in a furniture factory.
Simply put
A by-product is not the aim of production, but it is sold and brings in money. The common method is to subtract its sales value from the joint cost, which reduces the cost of the main product.
Alternatively you can record its value as other income; what matters is to stick to one method every period.
Worked example
A furniture factory's production cost for the month was 60,000 SAR, and it sold the sawdust and wood offcuts for 4,000 SAR.
Joint production cost60,000 SAR
Sales value of the by-product4,000 SAR
Net cost charged to the furniture60,000 − 4,000 = 56,000 SAR
Formula: Joint cost − net sales value of the by-product
Don't confuse it with
Joint productsJoint products are all main products with significant values, while a by-product is secondary.