| 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 | | $833,900 | | $1,015,100 | | | Cost of goods sold | | | | | | | | Finished goods, January 1 | | 24,000 | | 17,800 | | | | Cost of goods manufactured | | 544,600 | | 654,400 | | | | Total available | | 568,600 | | 672,200 | | | | Finished goods, December 31 | | 17,800 | | 13,300 | | | | Cost of goods sold before overhead adjustment | | 550,800 | | 658,900 | | | | Underapplied factory overhead | | 35,800 | | 14,100 | | | Cost of goods sold | | 586,600 | | 673,000 | | | Gross profit | | 247,300 | | 342,100 | | | Selling expenses | | 81,900 | | 94,500 | | | Administrative expenses | | 69,000 | | 74,400 | | | | Total operating expenses | | 150,900 | | 168,900 | | | Operating income | | $96,400 | | $173,200 | | | Daniels Tool & Die Corporation Inventory Balances | | | | January 1, 2015 | | December 31, 2015 | | December 31, 2016 | | Raw material | | $21,700 | | | $29,900 | | | $10,400 | | | Work in process | | $40,500 | | | $47,700 | | | $63,400 | | | Direct labour hours (used in WIP) | | 1,350 | | | 1,630 | | | 2,280 | | | Finished goods | | $24,000 | | | $17,800 | | | $13,300 | | | Direct labour hours (used in FG) | | 1,470 | | | 1,010 | | | 840 | | 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 | | $24,790 | | Variable factory overhead | | $153,698 | | Direct labour hours (used in WIP) | | 24,790 | | Direct labour costs (used in FG) | | $148,740 | In 2015 and 2016, the actual direct labour hours used were 20,200 and 23,800, respectively. Raw materials put into production were $291,500 in 2015 and $370,600 in 2016. The actual fixed overhead was $42,300 for 2015 and $23,240 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. |
