ElectronPlus manufactures and sells a unique electronic part. Operating results for the first three years of activity were as follows (absorption costing basis): Sales dropped by 20% during year 2 due to the entry of several foreign competitors into the market. ElectronPlus had expected sales to remain constant at 53,000 units for the year; production was set at 63,000 units in order to build a buffer against unexpected spurts in demand, By the start of year 3 , management could see that spurts in demand were unlikely and that the inventory was excessive. To work off the excessive inventories, ElectronPlus cut back production during year 3 , as shown below: Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $590,000 per year. b. Ficed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). The management of ElectronPlus can't understand why profits tripled 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 income statement for eoch year using variable costing. 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) (Round your anmwer to 2 decimal places.) b. Reconclie the variable conting and absorption costing operating income figures for each yeat. (Losses and deductible amounts should be Indicated by in minus sign. Do not leave any empty spaces; input a wherever it is required. Pound your Intermedlate calculations to 2 decimals and round your final answer to the nearest whole dollar.) 5-b. If lean production had been in use during year 2 and year 3, what would the company's operating income (or loss) have been in each year under absorption costing? (Loss amounts should be indicated by a minus sign.) a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labouc, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $590,000 per year. b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). c Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $68,100 per year. d. The company uses a FIFO inventory flow assumption
