Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Operating results for the first three years of activity were as folows (absorption costing basis) Sales Cost of goods sold Gross margin Seling and administrative expenses Net operating inoome (loss) $1,160,000 $1,044,000 $1,160,000 984,000 76,000 180,000 (4000) 940,000 220,000 180,000 40,000 102,000 74,000 270,000 168,000 Inthe latter part of Year 2. a competitor went out of business and in the process dumped a large number of units on the matet As a result Startix's Sales dropped by 10%dng Year 2 even though production increased during the year. Management had expected sales to remain constant at 40,000 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 inventory was excessive 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 $ 40000 45,000 6000 40,000 36,000 40,000 Additional information about the company folows: company's plant is highy automated Varliable mnctuingpes(rdirec lbor, and variable manufacturing overheod total only $5.50 per unt and fwed a. The manufacturing overhead expenses total ST20,000 per year b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's production. That is, a new fixed manufacturing overhead rate is computed each year c. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed seling and administrative expenses totaled $o0.000 per year The company uses a FIFO inventory fow assumption. santa s management can't understand why p onts more than doubled during Year 2 when sales dopped by 10%, and why a loss was incurred dring Yoar 3 when sales eo vered to previous levels Required: 1. Prepare a contribution format variable costing income statement for each year