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):

	Year 1			Year 2			Year 3
Sales	$	864,000		$	691,200		$	864,000
Cost of goods sold		626,400			432,000			669,600
Gross margin		237,600			259,200			194,400
Selling and administrative expenses		205,200			194,400			183,600
Net operating income (loss)	$	32,400		$	64,800		$	\10,800	\

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, Starfaxs sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 54,000 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 it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:

	Year 1	Year 2	Year 3
Production in units	54,000	64,800	43,200
Sales in units	54,000	43,200	54,000

Additional information about the company follows:

1. The companys 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 $518,400 per year.

2. 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.

3. Variable selling and administrative expenses were $1 per unit sold in each year. Fixed selling and administrative expenses totaled $143,200 per year.

4. 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.)

Starfaxs management cant 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 companys net operating income (or loss) have been in each year under absorption costing?

X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !!! Apps M Gmail (FGCU.edu 80 ECU Canvas FGCU Email Veoci Microsoft Teams T TopHat * D HW G Saved Help Save & Exit Submit 10 Check my work 2 Reg 1 Reg 21 Reo 2B Reg 5B Prepare a variable costing income statement for each year, 7 points Skipped Starfax, Inc Variable Costing Income Statement Year 1 Year 2 Year 3 eBook Variable expenses Hin References Total variable expenses 0 0 0 0 0 Fixed expenses 0 0 Total fixed cxpOnSOS Nel operating income (less) $ OS 0 $ Mc Graw HIN Type here to search o . C 22 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for loss) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 26 Reg 5B Hir" Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed. (Do not rourid intermediate calculations and round your final answers to 2 decimal places.) References Year 1 Year 2 Year 3 Variable manufacturing cost Fixed irianu facturing cost Unit product cost $ 0.00 S 0.00 S 0.00 > Mc Graw MIN Type here to search O . 6:27 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for lass) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 28 Reg 5 Hin Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deductions as a negative value.) References Year 2 Year 3 Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Variable costing net operating income (loss) Add fixed manufacturing overhead defered in inventory Deduct fixed manufacturing overhead cost released from inventory Absorption costing net operating income (loss) Screenshot saved The screenshot was added to your OneDrive OneDrive Mc Graw MIN Type here to search O . 6:24 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for loss) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 28 Reg 58 Hint 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 cosling? References Year 1 Year 2 Year 3 Screenshot saved The screenshot was added to your OneDrive OneDrive Mc Graw MIN Type here to search O . 6:24 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !!! Apps M Gmail (FGCU.edu 80 ECU Canvas FGCU Email Veoci Microsoft Teams T TopHat * D HW G Saved Help Save & Exit Submit 10 Check my work 2 Reg 1 Reg 21 Reo 2B Reg 5B Prepare a variable costing income statement for each year, 7 points Skipped Starfax, Inc Variable Costing Income Statement Year 1 Year 2 Year 3 eBook Variable expenses Hin References Total variable expenses 0 0 0 0 0 Fixed expenses 0 0 Total fixed cxpOnSOS Nel operating income (less) $ OS 0 $ Mc Graw HIN Type here to search o . C 22 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for loss) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 26 Reg 5B Hir" Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed. (Do not rourid intermediate calculations and round your final answers to 2 decimal places.) References Year 1 Year 2 Year 3 Variable manufacturing cost Fixed irianu facturing cost Unit product cost $ 0.00 S 0.00 S 0.00 > Mc Graw MIN Type here to search O . 6:27 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for lass) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 28 Reg 5 Hin Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deductions as a negative value.) References Year 2 Year 3 Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Variable costing net operating income (loss) Add fixed manufacturing overhead defered in inventory Deduct fixed manufacturing overhead cost released from inventory Absorption costing net operating income (loss) Screenshot saved The screenshot was added to your OneDrive OneDrive Mc Graw MIN Type here to search O . 6:24 PM 10/3/2020 X facu.instructure.com Connect C Get Homework Help With Chege x Starfax, Inc. Manufactures A Sme X C Starfax, Inc, Manufactures A Sm x + ezto.mheducation.com/ext/map/index.html?_con-con&external_browser-O&launchurl=https%253A%252F%252Flms.mheducation.com%252Fmghmiddleware%252Fmheproducts%252FlmsCloseWindow.ht... !! Apps M Gmail (FGCU.edu FGCU Canvas FGCU Email > veoci Microsoft Teams TopHat * D HWG A Savec Help Save & Exit Submit 10 Check my work 2 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 for loss) have been in each year under absorption costing? 7 points Skipped Complete this question by entering your answers in the tabs below. eBook Reg 1 Reg 2A Reg 28 Reg 58 Hint 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 cosling? References Year 1 Year 2 Year 3 Screenshot saved The screenshot was added to your OneDrive OneDrive Mc Graw MIN Type here to search O . 6:24 PM 10/3/2020