Anju Ltd. is engaged in production of butter. While producing butter buttermilk is also produced. Buttermilk is identified as by-product of butter.…

Buttermilk is a by-product of butter and treatment of by-product in cost accounting is as follows. (i) When they are of small total value, the amount realized from their sale may be dealt as follows: Sales value of the by-product may be credited to Profit and Loss Account and no credit be given in Cost Accounting. The credit to Profit and Loss Account here is treated either as a miscellaneous income or as additional sales revenue.The sale proceeds of the by-product may be treated as deduction from the total costs. The sales proceeds should be deducted either from production cost or cost of sales. (ii) When the by-products are of considerable total value: Where by-products are of considerable total value, they may be regarded as joint products rather than as by- products. To determine exact cost of by-products the costs incurred upto the point of separation, should be apportioned over by-products and joint products by using a logical basis. (iii) When they require further processing: In this case, the net realisable value of the by-product at the split-off point may be arrived at by subtracting the further processing cost from realisable value of by-product. If the value is small, it may be treated as discussed in (i) above.