Process costing-a case of by-products: introduction; examples of by-product; facts about by-products; diagrammatic presentation of by-product; examples

1.1 Introduction

Under process costing, there are three ways in which valuation of produced units are valued or assigned cost as indicated in our process costing article. In this article, the focus is on by-products.

Definition: By-products is a product (one, two or more services or goods) with reasonably lower economic value as compared to a main product which has been simultaneously produced under the same production process facility.

Examples of by-products

2.1 Introduction

By-product is a product (physical good or service) that arises from production of a main product

Examples of such products are: -

i). Refined oil-main product; Sulphur and chemical fertilizer are both by-products.

ii). Furniture final products such as chairs, tables and beds-main products; sawdust and offcuts are by-products.

iii). Steel final products-main product; ash is by-product.

2.2 Facts about by-products

By-products has the following features. That is;

  1. By-products accompany a main product. Hence there is no way a by-product can be produced alone or in isolation.
  2. By-products are either saleable or a total waste.
  3. If in case 2 above is of saleable value, the amount of sales proceeds realized is used to off-set the total cost of the main product.
  4. If in case 2 above is a waste. Hence has no saleable value, the by-product is declined or thrown away and its cost is absorbed in the cost per unit computed at the end of the production process.

2.3 Diagrammatic Case of Production of Main and By-Product

A case of further processing of a joint product where at the split off point there arises a main or principal product and less valuable other products-namely by products can be diagrammatically be presented using the Figure 1.1 below

2.4 Example 1

Sunshine co. ltd deals with product X which is processed from sunflower raw materials. In the month of October 2022, the organization produced 6,000 units of product X which was sold for $120 per unit. The total production during that period was $250,000. By the end of this process, a by-product was also realized which was in liquid form, that is 200 litres. The by-product was sold for $102 per litre. Note that post separation cost of the by-product was $1,000


Determine the production cost and the profitability level of the main product.

2.5 Example 2

Chicken feed co. ltd is an organization that deals with production of chicken food for commercial purposes. In the month of September 2022, the company used some inputs to produce output of this feed in kilograms which were converted to final products through a single process. The following information relate to the cost details.

Input materials introduced to process one;

The by-product was further processed to make it saleable. To achieve this objective, the producer transferred it to another process whereby the by-product was further processed to chicken manure. The additional costs (subsequent cost-post split off point cost) used to completely process this by-product was as indicated


i). Determine the total cost and cost per unit of the main product-chicken feed.

ii). Prepare process account for the main product (chicken feed) for the month of September 2022.

iii) By-product account.

iv). Abnormal loss or gain account whichever the case may be.


i). Determination of the total cost and cost per unit of the main product-chicken feed. To achieve this objective, we prepare a cost statement as follows;

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.