Starfax Inc, manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of operations were as follows (absorption costing basis): Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income (los) Year 1 $ 838,400 602.340 230,560 199,120 $ 31,440 Year 2 $570,720 419, 200 251, 520 188,640 $ Year $ 838,400 649,760 188,640 178,160 $ 110,400 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. Starfox's sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 52,400 units: the increased production was designed to provide the company with a buffer of protection against unexpected spuits 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. Starfox cut back production during Year 3, as shown below: Production in units Sales nuits Year 1 $2,400 52.400 Year 2 62,60 41,930 Ye 41,920 52,400 Additional information about the company follows a. The company's plant is highly automated. Variable manufacturing expenses (direct materials direct labor and variable manufacturing overhead) total only $200 per unit, and nixed manufacturing overhead expenses total $503,040 per year. Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $2.00 per unit, and fixed manufacturing overhead expenses total $503.040 per year b. A new fixed manufacturing overhead rate is computed each year based on that year's actual fixed manufacturing overhead costs divided by the actual number of units produced Variable selling and administrative expenses were $1 per unit sold in each year. Fixed selling and administrative expenses totaled $141.920 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.) Startax'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 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. 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? Answer is not complete. Prepare a variable costing income statement for each year. Year 3 838,400 Starfax, Inc. Variable Costing Income Statement Year 1 Year 2 Sales $ 838.400 $ 670,720 Variable expenses Beginning merchandise inventory 0 Ending merchandise inventory 0 Variable cost of goods sold Variable selling and administrative expenses Total variable expenses 0 0 Contribution margin 838.400 670.720 0 > 838,400 Fixed expenses Fixed manufacturing overhead Fixed selling and administrative expenses > > 0 0 0 Total fixed expenses Net operating income (loss) $ 838,400 $ 670,720 $ 838,400 5b. If Lean Production had been used during Year 2 and Year 3, what would the company each year under absorption costing? Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 5B Compute the unit product cost in each year under absorption costing. Show how much of thi fixed. (Do not round intermediate calculations and round your final answers to 2 decimal pla Variable manufacturing cost Fixed manufacturing cost Unit product cost Year 1 Year 2 Year 3 2.00 s 2.00$ 2.00 20.00 X 18.75 X 25.00 X 22.00 $ 20.75 $ 27.00 Check my work mode : This shows what is correct or incorrect for the work you have completed so for. It 5b. If Lean Production had been used during Year 2 and Year 3, what would the company's net operating Income (or lo each year under absorption costing? X Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 28 Reg 5B Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deduc negative value.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing not operating income (loss) $ 31,440 S 62,880 Add fixed manufacturing overhead deferred in inventory Deduct fixed manufacturing overhead cost released from inventory Absorption costing net operating income (loss) Year 3 $ (10.480) Req 1 Req 2A Req 2B Req 5B If Lean Production had been used during Year 2 and Year 3 been in each year under absorption costing? Net operating income $ 60,000 x Year 1 Year 2 Year 13 Net operating income X $ 102,000 X Net operating income 60 000 X