Question 2

Hi, please double check and answer these questions. Thanks.

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: 2015 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 2016 0 72,000 73,800 59,040 62,000 63,800 79,040 $29 529 $31 $3 $3 $4 5 5 6 4 4 4 5 5 5 590,400 590,400 590,400 120,000 120,000 120,000 Waterways uses the absorption-costing method and accounts for inventory using FIFO. 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 1798000 1850200 2450240 Cost of Goods Sold Beginning Inventory, January 1 0 202000 400000 Add : Cost of Goods Manufactured 1454400 1476000 1416960 Cost of Goods Available for Sale 1454400 1678000 1816960 Less Ending Inventory, Decemebr 31 202000 400000 1252400 1278000 1816960 Gross Profit 545600 572200 633280 Selling and Administration Expenses 430000 439000 515200 $ Operating Income / (Loss) 7 115600 133200 118080