Answer (C) is correct . A by-product is one of relatively small total value. The first question that must be answered in regard to by-products is: ?Do the benefits of further processing and bringing them to market exceed the costs; that is, is the incremental revenue worth the effort? ?Market price determines this. The same can essentially be said for the main products of the production process.
Answer (A) is incorrect because Historical cost is involved in both joint and by-product costing.
Answer (B) is incorrect because Prime costs, that is, direct materials and direct labor, go into every production process; they do not distinguish joint products from by-products.
Answer (D) is incorrect because Salvage value of equipment is not a useful criterion when setting prices for an ongoing production process.
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