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		68,000		74,800		52,360
Sales in units		60,000		64,800		70,360
Selling price		$43		$43		$45
Direct material		$6		$6		$7
Direct labour		2		2		3
Variable manufacturing overhead		7		7		7
Variable selling and administration		8		8		8
Fixed manufacturing overhead		523,600		523,600		523,600
Fixed selling and administration		120,000		120,000		120,000

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

(a1)

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
Selling and Administration expensesBeginning Inventory, January 1Cost of Goods ManufacturedEnding Inventory, Decemebr 31Gross ProfitCost of Goods Available for SaleOperating Income / (Loss)SalesCost of Goods Sold		$		$		$
Ending Inventory, Decemebr 31Selling and Administration expensesBeginning Inventory, January 1SalesCost of Goods Available for SaleGross ProfitOperating Income / (Loss)Cost of Goods ManufacturedCost of Goods Sold :
Gross Profit Selling and Administration expenses Operating Income / (Loss) Cost of Goods Available for Sale Ending Inventory, Decemebr 31 Sales Cost of Goods Sold Beginning Inventory, January 1 Cost of Goods Manufactured
Add Less : SalesGross ProfitSelling and Administration expensesEnding Inventory, Decemebr 31Cost of Goods SoldOperating Income / (Loss)Beginning Inventory, January 1Cost of Goods ManufacturedCost of Goods Available for Sale
Cost of Goods Sold Cost of Goods Available for Sale Gross Profit Sales Beginning Inventory, January 1 Ending Inventory, Decemebr 31 Selling and Administration expenses Cost of Goods Manufactured Operating Income / (Loss)
Add Less : Cost of Goods ManufacturedSelling and Administration expensesEnding Inventory, Decemebr 31Cost of Goods Available for SaleSalesGross ProfitOperating Income / (Loss)Cost of Goods SoldBeginning Inventory, January 1
Cost of Goods Available for SaleEnding Inventory, Decemebr 31Operating Income / (Loss)SalesBeginning Inventory, January 1Cost of Goods SoldCost of Goods ManufacturedGross ProfitSelling and Administration expenses
Ending Inventory, Decemebr 31Cost of Goods ManufacturedGross ProfitSalesSelling and Administration ExpensesOperating Income / (Loss)Cost of Goods SoldBeginning Inventory, January 1Cost of Goods Available for Sale
Selling and Administration ExpensesOperating Income / (Loss)SalesBeginning Inventory, January 1Cost of Goods Available for SaleCost of Goods SoldCost of Goods ManufacturedEnding Inventory, Decemebr 31Gross Profit		$		$		$