4 Chee Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers three years of operations were as follows (absorption costing basis: Results for the first 5 points Year Sales Cost of gooda sold Gross margin Selling and administrative expenses $1,100,000 $880,000 $1,100,000 840,000592,000890,000 200,000 30,000 8,000 (20,000) 260,000 288,000 230,000 210,000 eBook Ask Print References Net operating income (1oss) 30,000 0,000(20,000) In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfax's sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 50,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below Production in units Sales in units Year 1 Year 2 Year 3 50,000 60,000 40,000 50,000 40,000 s0,000 Additional information about the company follows a. The company's plant is highly automated. Veriable manufacturing expenses (direct materials, direct labor, and variable b. A new fixed manufacturing overhead rate is compute manufacturing overhead) total only $4.80 per unit, and fixed manufacturing overhead expenses total $600,000 per year divided by the actual number of units produced. $80,000 per year d each year based that years actual fixed manufacturing overhead costs and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled