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.

*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 $835,100 $1,016,000 Cost of goods sold Finished goods, January 1 24,000 17,200 Cost of goods manufactured 544,300 652,800 Total available 568,300 670,000 Finished goods, December 31 17,200 13,900 Cost of goods sold before overhead adjustment 551,100 656,100 Underapplied factory overhead 35,800 14,200 Cost of goods sold 586,900 670,300 Gross profit 248,200 345,700 Selling expenses 81,600 94,400 Administrative expenses 69,600 74,800 Total operating expenses 151,200 169,200 Operating income $97,000 $176,500 Daniels Tool & Die Corporation Inventory Balances January 1, 2015 December 31, 2015 Raw material $21,800 $29,600 Work in process $40,100 $ 47,100 Direct labour hours (used in WIP) 1,380 1,660 Finished goods $24,000 $17,200 Direct labour hours (used in FG) 1,480 1,050 December 31, 2016 $ 10,200 $63,400 2,370 $13,900 810 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 Variable factory overhead Direct labour hours (used in WIP) Direct labour costs (used in FG) $24,680 $ 153,016 24,680 $ 148,080 In 2015 and 2016, the actual direct labour hours used were 20,200 and 23,800, respectively. Raw materials put into production were $292,000 in 2015 and $370,900 in 2016. The actual fixed overhead was $42,700 for 2015 and $22,040 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.) Daniels Tools & Die Corporation Variable Costing Income Statement For the year ended December 31, 2016