Question

Problem 8-35A (Part Level Submission)

The Daniels Tool & Die Corporation has been in existence for a little over three years. The company’s sales have been increasing each year as it builds a reputation. The company manufactures dies to its customers’ specifications and therefore uses a job-order cost system. Factory overhead is applied to the jobs based on direct labour hours—the absorption-costing (full) method. Overapplied or underapplied overhead is treated as an adjustment to Cost of Goods Sold. The company’s income statements and other data for the last two years are as follows:

DANIELS TOOL & DIE CORPORATION 2015–2016 Comparative Income Statements
			2015		2016
Sales			$833,900		$1,015,100
Cost of goods sold
	Finished goods, January 1		24,000		17,800
	Cost of goods manufactured		544,600		654,400
	Total available		568,600		672,200
	Finished goods, December 31		17,800		13,300
	Cost of goods sold before overhead adjustment		550,800		658,900
	Underapplied factory overhead		35,800		14,100
Cost of goods sold			586,600		673,000
Gross profit			247,300		342,100
Selling expenses			81,900		94,500
Administrative expenses			69,000		74,400
	Total operating expenses		150,900		168,900
Operating income			$96,400		$173,200

Daniels Tool & Die Corporation Inventory Balances
		January 1, 2015			December 31, 2015			December 31, 2016
Raw material		$21,700			$29,900			$10,400
Work in process		$40,500			$47,700			$63,400
Direct labour hours (used in WIP)		1,350			1,630			2,280
Finished goods		$24,000			$17,800			$13,300
Direct labour hours (used in FG)		1,470			1,010			840

Daniels used the same predetermined overhead rate in applying overhead to its production orders in both 2015 and 2016. The rate was based on the following estimates:

Fixed factory overhead		$24,790
Variable factory overhead		$153,698
Direct labour hours (used in WIP)		24,790
Direct labour costs (used in FG)		$148,740

In 2015 and 2016, the actual direct labour hours used were 20,200 and 23,800, respectively. Raw materials put into production were $291,500 in 2015 and $370,600 in 2016. The actual fixed overhead was $42,300 for 2015 and $23,240 for 2016, and the planned direct labour rate was the direct labour achieved.

For both years, all of the administrative costs were fixed. The variable portion of the selling expenses results from a 5% commission that is paid as a percentage of the sales revenue.

*(a)

	Your answer is correct.

For the year ended December 31, 2016, prepare a revised income statement for Daniels Tool & Die Corporation using the variable-costing method. (Round answers to 0 decimal places, e.g. 5,275.)

Daniels Tools & Die Corporation Variable Costing Income Statement For the year ended December 31, 2016
Sales				$ 1015100
Less : Variable costs
Variable cost of goods sold		$ 650240
Sales commissions		50755
Total variable costs				700995
Contribution margin				314105
Less : Fixed costs
Fixed manufacturing overhead		23240
Fixed selling and administrative expenses		118145
Total fixed costs				141385
Operating income				$ 172720

*(b)

Reconcile the difference in operating income between Daniels Tool & Die Corporation’s 2016 absorption-costing income statement and the revised 2016 income statement prepared under variable costing. (Round answers to 0 decimal places, e.g. 5,275.)

Variable costing operating income		$
FMOH deferred in work in process Inventory
FMOH released from finished goods inventory
Absorption costing operating income		$

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Answer 1