Starfox, 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 $1,000,000 $790,000 $1,000,000 Cost of goods sold 740,000 520,000 785,000 Gross margin 260,000 270,000 215,000 Selling and administrative 220,000 190,000 220,000 expenses Net operating $ 40,000 $80,000 $ (5,000) 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 ces 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 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 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 Production in 50,000 units Sales in units 50,000 Year 2 Year 3 60,000 40,000 40,000 50,000 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 $4.00 per unit, and fixed manufacturing overhead expenses total $540,000 per year. b. A new fued manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced c Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 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) Starfox'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 foed b. Reconcile the variable costing and absorption costing net operating income figures for each year Sb. of 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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 26 Reg 58 Reconcile the variable costing and absorption costing net operating income figures for each year. (Enter any losses or deductions as a negative value) Reconciliation of Variable Costing and Absorption Costing Net Operating incomes Year 1 Year 2 Years Variable costing net operating income loss) Add foed manufacturing overhead deferred in Inventory Deduct faced manufacturing overhead cost released from inventory Absorption coating net operating income (s) Req 2A Req5B > Year 2 Year 1 Production in units 50,000 Sales in 50,000 units Year 3 40,000 60,000 40,000 50,000 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 $4.00 per unit, and fixed manufacturing overhead expenses total $540,000 per year. b. A new fixed manufacturing overhead rate is computed each year based that year's actual fred manufacturing overhead costs divided by the actual number of units produced. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 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) 5 Starfax'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 D. 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? Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Reg 5B Prepare a variable costing income statement for each year. Starfax, Inc. Variable Coating Income Statement Year 1 Year 2 Year 3 Sales $ 1,000,000 790.000 1.000.000 Variable expenses Variable cost of goods sold 200,000 160,000 200,000 Variable sciling and administrative expenses 150,000 120.000 150,000 Total variable expenses Contribution margin Fixed expenses Fixed manufacturing overhead Fixed selling and administrative 350,000 650,000 280,000 510.000 350.000 650.000 540.000 540.000 70,000 540,000 70.000 70,000 Totalfixed expenses Net operating income (los) 610.000 610.000 610.000 $ 40,000 (100 000) $ 40.000 Reg 2 > Net operating income (loss) $ 40,000 $ 80,000 $ (5,000) 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, Startax's sales dropped by 20% during Year 2 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 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 Production in units 50.000 Sales in units 50,000 Year 2 60,000 Year 3 40,000 50,000 40,000 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 $4.00 per unit, and fixed manufacturing overhead expenses total $540,000 per year. b. A new foxed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced c. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 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 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 foed. b. Reconcile the variable costing and option costing net operating income figures for each year Sb. 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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Req 2B Req 58 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 round intermediate calculations and round your final answers to 2 decimal places.) Show less Year! Year 2 Year 3 Variable manufacturing cost $ 4.00 $ 4.00 $ 4.00 Fixed manufacturing cost 10.80 9.00 13.50 Unit product cost S 14.80 $ 13.00 $ 17.50