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	68,000	74,800	52,360
Sales in units	58,000	64,800	72,360
Selling price	$33	$33	$35
Direct material	$4	$4	$5
Direct labour	3	3	4
Variable manufacturing overhead	5	5	5
Variable selling and administration	6	6	6
Fixed manufacturing overhead	523,600	523,600	523,600
Fixed selling and administration	140,000	140,000	140,000

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

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(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 years ending December 31
2014	2015	2016
SalesBeginning Inventory, January 1Gross MarginCost of Goods SoldOperating Income / (Loss)Cost of Goods Available for SaleCost of Goods ManufacturedEnding Inventory, Decemebr 31Selling and Administration expensesCost of Goods Sold	$	$	$
Cost of Goods Available for SaleCost of Goods SoldBeginning Inventory, January 1Ending Inventory, Decemebr 31Gross MarginSelling and Administration expensesCost of Goods SoldOperating Income / (Loss)Cost of Goods ManufacturedSales:
Ending Inventory, Decemebr 31SalesBeginning Inventory, January 1Cost of Goods SoldGross MarginCost of Goods SoldSelling and Administration expensesOperating Income / (Loss)Cost of Goods ManufacturedCost of Goods Available for Sale
AddLess: Cost of Goods SoldGross MarginCost of Goods Available for SaleSelling and Administration expensesBeginning Inventory, January 1Ending Inventory, Decemebr 31Operating Income / (Loss)SalesCost of Goods ManufacturedCost of Goods Sold
Selling and Administration expensesCost of Goods SoldEnding Inventory, Decemebr 31Operating Income / (Loss)Cost of Goods Available for SaleSalesBeginning Inventory, January 1Cost of Goods SoldCost of Goods ManufacturedGross Margin
AddLess: Ending Inventory, Decemebr 31SalesCost of Goods Available for SaleGross MarginCost of Goods SoldSelling and Administration expensesOperating Income / (Loss)Cost of Goods SoldBeginning Inventory, January 1Cost of Goods Manufactured
Operating Income / (Loss)Ending Inventory, Decemebr 31SalesBeginning Inventory, January 1Cost of Goods SoldGross MarginCost of Goods SoldCost of Goods Available for SaleSelling and Administration expensesCost of Goods Manufactured
Beginning Inventory, January 1Cost of Goods Available for SaleCost of Goods SoldCost of Goods SoldOperating Income / (Loss)Ending Inventory, Decemebr 31Selling and Administration ExpensesCost of Goods ManufacturedGross MarginSales
Gross MarginCost of Goods SoldSelling and Administration ExpensesOperating Income / (Loss)Beginning Inventory, January 1Cost of Goods Available for SaleCost of Goods ManufacturedSalesCost of Goods SoldEnding Inventory, Decemebr 31	$	$	$