Common costs are usually not allocated to by-products.
This is a description of the Sales Method of accounting for a by-product. In the Sales Method, the by-product costs are not put inventory separately but instead are allocated to the main product or joint products. When the by-product is sold, the sale is recorded the way service revenue would be recorded, with no associated cost of sales. The Sales Method is simpler than the Production Method and is used more frequently if the value(s) of the by-product(s) are immaterial. However, the statement in this question that "The by-product's relative sales value is quite low compared with that of the main products" does not necessarily mean that its relative sales value is immaterial. The definition of any by-product is that its sales value is quite low compared with that of the main products. The Production Method of accounting for by-products is preferable to the Sales Method because it is consistent with the matching principle.
Usually the sales revenue from the sale of a by-product is accounted for as a reduction of the common costs that are allocated to the other products. This is called the Production Method, where the byproduct is inventoried at the time of production. The Production Method of accounting for by-products is preferable to the Sales Method because it is consistent with the matching principle. The Sales Method, where the byproduct is recognized at the time of sale, is simpler and is used more frequently if the value(s) of the by-product(s) are immaterial. However, the statement in this question that "The by-product's relative sales value is quite low compared with that of the main products" does not necessarily mean that its relative sales value is immaterial. The definition of any by-product is that its sales value is quite low compared with that of the main products.
Usually the sales revenue from the sale of a by-product is accounted for as a reduction of the common costs that are allocated to the other products.
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