What is the key distinction of a by-product regarding its value?

A by-product is characterized by its lower economic value compared to the principal product being produced. In many production processes, multiple products may be generated, and the primary focus is on the main product, which has significant market demand and value. The by-products, while still useful, tend to generate less revenue and are secondary to the principal product.

This distinction is important in cost management and production planning, as it affects how businesses allocate resources and manage their overall profitability. By-products can sometimes be sold or utilized in other processes, but their role is fundamentally to add additional value to the main production without being the focus of the manufacturing effort.

Understanding this helps in correctly assessing the cost structure of a production process and determining how to treat different products in financial evaluations.