Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Starfax, Incorporated, manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of

image text in transcribed
image text in transcribed
Starfax, Incorporated, 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 5838,400 5 670,720 5 838,480 Cost of goods sold 607,840 419,200 649,760 Gross margin 230, 560 251, 520 188,640 Selling and administrative expenses 199,120 188 640 178, 160 Net operating income (loss) $ 31,440 $ 62,880 $ 110, 4801 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 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 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 52,400 62,880 41,920 Sales in units 52,400 41,920 52,400 Additional information about the company follows a. The company's plant is highly automated Variable manufacturing expenses (direct materiais, 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 c. Variable selling and administrative expenses were S1 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) Starfax's management can't understand why profits doubled during Year 2 when sales cropped 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 ancome (or loss) have been in each year under absorption costing? Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 28 Reg 58 Prepare a variable costing income statement for each year. Starfax, Incorporated Variable Costing Income Statement Year 1 Year 2 Year 3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance The Basics

Authors: Erik Banks

3rd Edition

1138919780, 9781138919785

More Books

Students also viewed these Accounting questions

Question

What is a value chain? Discuss.

Answered: 1 week ago

Question

licensure as a psychologist in the respective jurisdiction; and

Answered: 1 week ago