A

*Waterways Continuing Problem-8 (Part Level Submission) When Waterways' management met to review the year-end financial statements, the room was filled with excitement. Sales had been exceptional during the year and every department had exceeded the budget and last year's sales totals. Several years ago Waterways had implemented a bonus system based on percentage of sales over budget, and the managers were expecting healthy cheques at the end of the year. Yet the plant manager, Ryan Smith, was stunned into silence when he read the bottom line on the income statement for manufacturing operations. It was showing a loss! He immediately approached the CFO asking for an explanation. Ryan wondered, "Why did we go through all that trouble and inconvenience to adopt those cost- cutting measures when they had the opposite effect?" One of those measures was to move toward lean manufacturing. The CFO retrieved the following information with respect to the top-selling line from the manufacturing operations for the last three years. Production on this line began on January 1, 2014: Beginning inventory of finished units Production in units Sales in units Selling price Direct material Direct labour Variable manufacturing overhead Variable selling and administration Fixed manufacturing overhead Fixed selling and administration 2014 2015 2016 o 80,000 83,000 66,400 70,000 73,000 86,400 $35 $35 $37 $5 $5 $6 3 3 4 6 6 6 7 7 7 664,000 664,000 664,000 120,000 120,000 120,000 Waterways uses the absorption-costing method and accounts for inventory using FIFO. Waterways Continuing Problem-8 (Part Level Submission) Using the information provided, recreate Waterways' statements for this division using condensed, three-year comparative income statements. WATERWAYS CORPORATION Absorption Costing Income Statement For the year ending December 31 2014 2015 2016 Sales 2,450,000 2,555,000 3,196,800 Cost of Goods Sold 0 223,000 440,000 Beginning Inventory, January 1 Add Cost of Goods Manufactured 1,784,000 1,826,000 1,726,400 Cost of Goods Available for Sale 1,784,000 2,049,000 2,166,400 Less : Ending Inventory, Decemebr 31 -223,000 440,000 0 1,561,000 1,609,000 2,166,400 Gross Profit 889,000 946,000 1,030,400 Selling and Administration Expenses 610,000 631,000 724,800 Operating Income /(Loss) 279,000 315,000 305,600 Using the information provided, prepare condensed, three-year comparative income statements using the variable-costing method. WATERWAYS CORPORATION Variable Costing Income Statement For the years ending December 31 2014 2015 2016 Reconcile the variable-costing income with the absorption-costing income calculated in part (a). 2014 2015 2016 Variable costing income Add: Deferred fixed manufacturing overhead Less: Released fixed manufacturing overhead Absorption costing income