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):

Problem 4-25 (Algo) Prepare and Interpret Income Statements; Changes in Both Sales and Production; Lean Production (LO4-1, LO4-2, LO4-3] 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): 000 Year 1 $1,160,000 940,000 220,000 180,000 Year 2 $1,022,000 774,000 248,000 Year 3 $1,160,000 984,000 176,000 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income (loss) 168,000 180,000 $ 40,000 $ 80,000 $ (4,000) 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, Starfax's sales dropped by 10% during 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 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: Req 1 Req 2A Req 2B Req 5B Prepare a contribution format variable costing income statement for each year. Starfax, Inc. Variable Costing Income Statement Year 1 $ 1,160,000 Year 2 $ 1,022,000 Year 3 1,160,000 Sales $ Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin 1,160,000 1,022,000 1,160,000 Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss) $ 1,160,000 $ 1,022,000 $ 1,160,000 Req 1 Req 2A Req 2B Req 5B Compute the unit product cost in each year under absorption costing. is fixed. (Do not round intermediate calculations and round your final a Year 1 Year 2 Year 3 Variable manufacturing cost Fixed manufacturing cost Unit product cost $ 0.00 $ 0.00 $ 0.00 Req 1 Req 2A Req 2B Req 5B Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deductio negative value.) 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 deferred in inventory Deduct fixed manufacturing overhead cost released from inventory Absorption costing net operating income (loss) Req 1 Req 2A Req 2B Req 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? Year 1 Year 2 Year 3