a. The company's plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $4.00 per unit, and fixed manufacturing overhead expenses total $540,000 per year. b. A new fixed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced. c. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 per year. d. The company uses a FIFO inventory flow assumption. (FIFO means first-in first-out. In other words, it assumes that the oldest units in Inventory are sold first.) Starfax's management can't understand why profits doubled during Year 2 when sales dropped by 20% and why a loss was incurred during Year 3 when sales recovered to previous levels. Required: 1. Prepare a contribution format variable costing income statement for each year. 2. Refer to the absorption costing income statements above. a. Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed. b. Reconcile the variable costing and absorption costing net operating income figures for each year. 5b. Ir Lean Production had been used during Year 2 and Year 3, what would the company's net operating income (or loss) have been in each year under absorption costing? Reg 1 Req 2A Req 2B Req 5B Prepare a contribution format variable costing income statement for each year. Starfax, Inc. Variable Costing Income Statement Year 1 Year 2 Year 3 Variable expenses Total variable expenses Fixed expenses Total food expenses Net operating income (loss) $ 0 0 $ 0 Reg 2A Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Req 2B Req 5B Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deductions as negative value.) Year 2 Year 3 Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Variable costing not operating income (loss) Add fixed manufacturing overhead deferred in inventory Deduct fixed manufacturing overhead cost released from inventory Absorption costing net operating income (loss) Complete this question by entering your answers in the tabs below. Print terences Reg 1 Reg 2A Reg 28 Req 5B If Lean Production had been used during Year 2 and Year 3, what would the company's net operating income (or loss) have been in each year under absorption costing? Year 1 Year Year 3