In cost accounting, what do by-product credits refer to?

By-product credits refer to the revenue generated from secondary products produced during the manufacturing process. In many production environments, the main product is accompanied by additional, lesser-value products known as by-products. These by-products can contribute to a company's revenue, offsetting some of the costs associated with the main production and enhancing overall financial performance.

For example, in a lumber mill, the main product might be timber, while sawdust and wood chips are considered by-products. Selling these by-products generates credits that can be recorded as revenue. This practice is important for accurately evaluating the financial performance of production processes and can influence pricing strategies, cost assessments, and profitability calculations.

The other choices do not align with the definition of by-product credits. Selling defective products does not generate revenue in the same manner, as there would typically be no market for them. Returns from excess raw materials relate to inventory management rather than revenue generation from by-products. Lastly, discounts on bulk purchases pertain to procurement and purchasing practices rather than the financial outcome related to by-products in production.