Question

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			$838,800		$1,015,900
Cost of goods sold
	Finished goods, January 1		24,700		17,400
	Cost of goods manufactured		547,700		650,700
	Total available		572,400		668,100
	Finished goods, December 31		17,400		13,700
	Cost of goods sold before overhead adjustment		555,000		654,400
	Underapplied factory overhead		35,100		14,000
Cost of goods sold			590,100		668,400
Gross profit			248,700		347,500
Selling expenses			81,200		94,900
Administrative expenses			69,600		74,400
	Total operating expenses		150,800		169,300
Operating income			$97,900		$178,200

Daniels Tool & Die Corporation Inventory Balances
		January 1, 2015			December 31, 2015			December 31, 2016
Raw material		$21,600			$29,000			$10,800
Work in process		$40,300			$47,200			$63,800
Direct labour hours (used in WIP)		1,310			1,660			2,400
Finished goods		$24,700			$17,400			$13,700
Direct labour hours (used in FG)		1,470			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		$24,540
Variable factory overhead		$152,148
Direct labour hours (used in WIP)		24,540
Direct labour costs (used in FG)		$147,240

In 2015 and 2016, the actual direct labour hours used were 20,700 and 23,700, respectively. Raw materials put into production were $292,000 in 2015 and $370,900 in 2016. The actual fixed overhead was $42,100 for 2015 and $21,260 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.

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

WN-1	Computation of the Direct labor rate	$147240/24540			Daniel Tool & Die
		$6			Computation of the Revised Income Statement
	The direct labor cost in WIP is the estimated Labor cost			Particulars		Amount
WN-2	Computation of Direct labor Cost			Sales		$1,015,900
	Direct labor Hrs used in WIP Dec 31	1660		variable cost of goods sold
	Add Actual Prod Hrs	23700		Raw Material	$389,500
		25360		Direct labor Cost	$147,240
	Less Direct labor hrs in FG	820				$536,740
		24540		Variable Factory Overhead		$110,400
	Multiplied by Direct Labor Cost rate	$6		Sales Commission @5% *1015900		$50,795
	Total Direct Labor Cost	$147,240		Total Variable Cost		$697,935
WN-3	Computation of Raw Material			Fixed Cost
	Raw Material as on Dec 31 2015	$29,000		Fixed factory overhead		$21,260
	Add raw material put into prod	$370,900		Administrative Expenses		$74,400
		$399,900		Selling Expenses (94900-50795)		$44,105
	Less Raw Material as on Dec 31 2016	$10,400		Total Fixed Cost		$139,765
		$389,500		Operating Income		$178,200
WN-4	Computation of factory OH
	Cost of goods sold before Overhead adjustment	$654,400
	Add:Underapplied factory overhead	$14,000
	Cost of Goods sold	$668,400
	Less raw material cost	$389,500
	Direct Labor Cost	$147,240
	Factory Overhead	$131,660
	Less Actual Fixed Overhead	$21,260
	Variable Factory Overhead	$110,400