Starfax, Inc, manufactures a small part that is widely used in various electronic products such as home three years of operations were as follows (absorption costing basis) computers Results for the first Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income (loss) 1,160,000 $1,044,80$1,168,000 984,000 a76,008 188,000 940.000 220,024,809 180,000 270,000 168,000 40,000$8e,000 4,800) In the latter part of Year 2, a competitor went out of busness and in the process dumped a large number of units on the market As a result Starfax's sales dropped by 10% during Year 2 oven though production increased during the year Management had expected sales to temain constant at 40,000 units, the increased production was designed to proinde the compony with a buffer of protection against unexpected spurts in demand By the start of Year 3, management coold see that it had excess inventory and that spurts in demand were unlikely To reduce the excessive inventories, Storfax ct back production daring Year 3 as shown below Year1 Production in units Sales in units 45,000 6,800 40,000 40,890 Additional information about the company follows n. The company's plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $5 50 per unit, and fixed manufacturing overhead expenses total $720,000 per year b A new fixed manufacturing overheod rate is computed each year based thot years actual fixed manufacturing overhead costs divided by the actual number of units produced c Vanable selling and administrative expenses were $.3 per unit sold in each year Fixed selling and administrative expenses totaled d. The company uses a FIFO iniventory flow ossumption (FIF O means first in first out In other words, it assumes thot 60.000 per year