By-products are secondary products arising from common production together with so called main product. By-product does are not as important as the main products and are usually much cheaper.
Example of by-product: lanolin obtained from processing wool or pectin obtained from processing fruits
As the production or its part is common, joint (common) costs are incurred. As by-product arises “by the way” during the production of the main product, the cost division is done very easily - net realizable value (sales value) of the by-product is deducted from the costs of the main product and the difference is used to cost the main product.
And what are the indicators that can help distinguish whether the products manufactured together during common production are joint or it is main and by product? Read about it here.