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 $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 Operating income 150,900 168,900 $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 Variable factory overhead $24,790 $153,698 Direct labour hours (used in WIP) Direct labour costs (used in FG) 24,790 $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. In order to apply variable costing to the Daniels Tool & Die operations, it is necessary to first remove fixed manufacturing costs from the inventory values and the cost of goods sold. Fixed MOH per unit = $24,790 24,790 DLH = $1.00 per DLH Beginning finished goods inventory: Using absorption costing $17,800 Less: Fixed MOH included (1,010 hours $1.00) 1,010 Using variable costing $16,790 Ending finished goods inventory Using absorption costing $13,300 Less: Fixed MOH included (840 hours x $1.00) 840 Using variable costing $12,460 Beginning work in process inventory: Using absorption costing $47,700 Less: Fixed MOH included (1,630 hours $1.00) 1,630 Using variable costing $46,070 Ending work in process inventory Using absorption costing $63,400 Less: Fixed MOH included (2,280 hours $1.00) 2,280 Using variable costing $61,120 Variable cost of goods manufactured: Raw materials put into production $370,600 Direct labour [23,800 ($148,740 24,790)] 142,800 Variable overhead [23,800 ($153,698 = 24,790)] 147,560 Total variable manufacturing costs 660,960 Plus: Variable beginning work in process 46,070 707,030 Less: Variable ending work in process 61,120 Variable cost of goods manufactured $645,910 Variable cost of goods sold: Variable beginning finished goods inventory $16,790 Plus: Variable cost of goods manufactured 645,910 Variable cost of goods available for sale Less: Variable ending finished goods inventory Variable cost of goods sold Sales commissions (5% Sales) Selling & Admin ($94,500 $50,755 + $74,400) = $118,145 $662,700 12,460 $650,240 = $50,755 (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. (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