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			$839,800		$1,015,100
Cost of goods sold
	Finished goods, January 1		24,400		17,100
	Cost of goods manufactured		543,000		657,800
	Total available		567,400		674,900
	Finished goods, December 31		17,100		13,400
	Cost of goods sold before overhead adjustment		550,300		661,500
	Underapplied factory overhead		35,000		14,200
Cost of goods sold			585,300		675,700
Gross profit			254,500		339,400
Selling expenses			81,100		94,800
Administrative expenses			69,500		74,800
	Total operating expenses		150,600		169,600
Operating income			$103,900		$169,800

Daniels Tool & Die Corporation Inventory Balances
		January 1, 2015			December 31, 2015			December 31, 2016
Raw material		$21,000			$29,100			$10,300
Work in process		$40,200			$47,000			$63,000
Direct labour hours (used in WIP)		1,320			1,620			2,440
Finished goods		$24,400			$17,100			$13,400
Direct labour hours (used in FG)		1,520			1,060			850

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		$24,750
Variable factory overhead		$153,450
Direct labour hours (used in WIP)		24,750
Direct labour costs (used in FG)		$148,500

In 2015 and 2016, the actual direct labour hours used were 20,700 and 23,700, respectively. Raw materials put into production were $291,900 in 2015 and $370,600 in 2016. The actual fixed overhead was $42,700 for 2015 and $28,260 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)

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.)