70.2K

Verified Solution

Link Copied!

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 $ $ $

Answer & Explanation Solved by verified expert

See Answer