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 ofactivity were as follows (absorption costing basis) Year 1 Year 2 Year 3 Sales 1,100,000 S 880,000 1,100,000 Cost of goods sold 835,000 588,000 885,00 Gross margi 265,000 292,000 215,000 Selling and administrative expenses 260,000 220.000 260,000 5,000 S 72.000 45,000 Net operating income (loss) 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 20% during Year2 even though production increased during the year. Management had expected sales to remain constant at 50.000 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 reducethe excessive inventories, Startax cut back production during Year 3, as shown below: Year Year 2 Year 3 Productio 50,000 60,000 40.00 Sales 50,000 40,000 50.00 units Additional intormation 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 $4.70 per unit, and fixed manufacturing overhead expenses total $600,000 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 S4 per unit sold in each year. Fixed selling and administrative expenses totaled $60,000 per year. d. The company uses a FiFO inventory flow assumption. Starfax s management can't understand why profits more than doubled during Year 2 when sales dropped by 20%, and why a loss was incurred during Year 3when sales recovered to previous levels Required: 1. Prepare a contribution format variable costing income statement for each year