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 $832,800 $1,015,100 Cost of goods sold Finished goods, January 1 24,100 17,900 Cost of goods manufactured 545,100 656,200 Total available 569,200 674,100 Finished goods, December 31 17,900 13,300 Cost of goods sold before overhead adjustment 551,300 660,800 Underapplied factory overhead 35,600 14,100 Cost of goods sold 586,900 674,900 Gross profit 245,900 340,200 Selling expenses 81,400 94,700 Administrative expenses 69,900 74,500 Total operating expenses 151,300 169,200 Operating income $94,600 $171,000 Daniels Tool & Die Corporation Inventory Balances January 1, 2015 December 31, 2015 December 31, 2016 Raw material $21,500 $29,100 $11,000 Work in process $40,000 $47,300 $63,000 Direct labour hours (used in WIP) 1,320 1,670 2,120 Finished goods $24,100 $17,900 $13,300 Direct labour hours (used in FG) 1,520 1,090 820 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 $24,870 Variable factory overhead $154,194 Direct labour hours (used in WIP) 24,870 Direct labour costs (used in FG) $149,220 In 2015 and 2016, the actual direct labour hours used were 20,300 and 23,100, respectively. Raw materials put into production were $291,900 in 2015 and $370,200 in 2016. The actual fixed overhead was $42,300 for 2015 and $33,980 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.)

Answer 1