Reference no: EM132481200

Point 1: 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                                              $835,500              $1,015,300

Cost of goods sold

Finished goods, January                         1 24,800               17,500

Cost of goods manufactured                      546,600              651,500

Total available                                     571,400                   669,000

Finished goods, December 31                  17,500                    13,100

Cost of goods sold before overhead adjustment 553,900          655,900

Underapplied factory overhead                    35,600                14,000

Cost of goods sold                                   589,500             669,900

Gross profit                                            246,000              345,400

Selling expenses                                       81,800              94,100

Administrative expenses                              69,000            74,800

Total operating expenses                           150,800          168,900

Operating income                                     $95,200             $176,500

Daniels Tool & Die Corporation Inventory Balances

January 1, 2015 December 31, 2015 December 31, 2016

Raw material                 $21,200                      $29,300             $10,300

Work in process           $40,300                    $47,000                $63,200

Direct labour hours (used in WIP) 1,360           1,620                     2,090

Finished goods                           $24,800                $17,500          $13,100

Direct labour hours (used in FG)       1,490               1,100              810

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 $24,500

Variable factory overhead $151,900

Direct labour hours (used in WIP) 24,500

Direct labour costs (used in FG) $147,000

Point 2: In 2015 and 2016, the actual direct labour hours used were 20,600 and 23,100, respectively. Raw materials put into production were $291,400 in 2015 and $370,300 in 2016. The actual fixed overhead was $43,000 for 2015 and $29,580 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.

Question 1: (a) For the year ended December 31, 2016, prepare a revised income statement for Daniels Tool & Die Corporation using the variable-costing method.