Reference no: EM132561319

MERGE Inc. manufactures ZEN product from a process that yields a by-product called YAN. The by-product requires additional processing cost of P30,000. The by-product will require selling and administrative expenses totaling P20,000. It is MERGE's accounting policy to charge the joint costs to the main product only. Information concerning a batch produced during the year ended December 31, 2016 follows:

Product                          Units Produced                    MV at Split Off              Units Sold
ZEN                                100,000                           P50                        60,000
YAN                                10,000                             P10                            8,000

The joint costs incurred up to split-off point are:

Direct materials           P2,000,000
Direct labor                    800,000
Factory overhead               200,000

The selling and administrative expense of MERGE Inc. for the year ended December 31,2016 is P1,000,000 exclusive of that for the by-product.

Question 1: What is the gross profit for the year if the net revenue from by-product is presented as other income?