Question

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: 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 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 [no answer] $ $ $ [no answer] : [no answer] [no answer] [no answer] : [no answer] [no answer] [no answer] : [no answer] [no answer] [no answer] [no answer] [no answer] : [no answer] [no answer] $ $ $

Answer 1