_{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 years 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}

		2014		2015		2016
Beginning inventory of finished units		0
Production in units		84,000		89,600		67,200
Sales in units		74,000		79,600		87,200
Selling price		$27		$27		$29
Direct material		$3		$3		$4
Direct labour		4		4		5
Variable manufacturing overhead		4		4		4
Variable selling and administration		5		5		5
Fixed manufacturing overhead		672,000		672,000		672,000
Fixed selling and administration		120,000		120,000		120,000

_{Waterways uses the absorption-costing method and accounts for inventory using FIFO.}

_{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		$		$		$

WATERWAYS CORPORATION Absorption Costing Income Statement For the year ending December 31 2014 2015 2016 Sales 1,998,000 2,149,200 2,528,800 Cost of Goods Sold 0 190,000 370,000 1,596,000 1,657,600 1,545,600 Beginning Inventory, January 1 Add: Cost of Goods Manufactured Cost of Goods Available for Sale Less Ending Inventory, Decemebr 31 1,596,000 1,847,600 1,915,600 190,000 370,000 1,406,000 1,477,600 1,915,600 Gross Profit 592,000 671,600 613,200 Selling and Administration Expenses 490,000 518,000 556,000 Operating Income / (Loss) 102,000 153,600 57,200