Definition
Main Product refers to the product of a manufacturing or production process that holds the most significant economic value or importance. During a production process, multiple outputs may be produced. The main product is distinguished from by-products and joint products based on its relative economic value:
- By-products are secondary products of minimal economic importance, often considered waste or residual.
- Joint products have approximately equal economic significance, challenging to distinguish a main product among them.
This classification becomes vital for accounting practices such as process costing, ensuring accurate financial reporting and cost allocation.
Examples
Crude Oil Refining
- Main Product: Petrol (Gasoline)
- By-Products: Diesel, Kerosene, Lubricants
Dairy Processing
- Main Product: Milk
- By-Products: Buttermilk, Whey
Poultry Farm
- Main Product: Chicken Meat
- By-Products: Feathers, Liver
Wood Processing
- Main Product: Lumber
- By-Products: Sawdust, Wood Chips
Frequently Asked Questions
Q1: How is the main product determined in a manufacturing process? A1: The main product is identified based on its greater economic significance compared to other outputs. Factors influencing this include market value, volume of production, and contribution to revenue.
Q2: Can a production process have more than one main product? A2: No, if multiple products have equal economic significance, they are termed joint products rather than main products.
Q3: How are costs allocated between the main product and by-products? A3: In process costing, costs are primarily allocated to the main product. By-products may absorb minimal costs based on their relative economic value, often related to their net realizable value.
Related Terms
- By-product: A secondary product derived from a manufacturing process or chemical reaction, having relatively lower economic significance.
- Joint Products: Products that emerge from a common process and hold approximately equal economic value.
- Process Costing: A cost accounting method used in industries where production is continuous, assigning costs to each process stage.
Online References
Suggested Books for Further Studies
- Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan
- Managerial Accounting by Ray H. Garrison, Eric Noreen, and Peter C. Brewer
- Accounting for Non-Accountants: The Fast and Easy Way to Learn the Basics by Wayne Label
Accounting Basics: “Main Product” Fundamentals Quiz
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