Problem 8-35A (Part Level Submission)

The Daniels Tool & Die Corporation has been in existence for a little over three years. The companys 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 hoursthe absorption-costing (full) method. Overapplied or underapplied overhead is treated as an adjustment to Cost of Goods Sold. The companys income statements and other data for the last two years are as follows:

DANIELS TOOL & DIE CORPORATION 20152016 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, 2016			December 31, 2017
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 $37,200 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.

Reconcile the difference in operating income between Daniels Tool & Die Corporations 2016 absorption-costing income statement and the revised 2016 income statement prepared under variable costing. (Round answers to 0 decimal places, e.g. 5,275.)

Variable costing operating income		$
FMOH deferred in work in process Inventory
FMOH released from finished goods inventory
Absorption costing operating income		$