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Fairfax Inc. manufactures a small part that is widely used in various electronic products. Operating results for the first three years of operation are as follows:

Year 1 Year 2 Year 3

Sales 800,000 672,000

CGS 600,000 504,000

Gross margin 200,000 168,000

Selling and admin. Expenses 200,000 184,000

Net operating income (loss) 0 (16,000)

Production and sales data for the three year period were as follows:

Year 1 Year 2 Year 3

Production units 50,000 50,000 45,000

Sales units 50,000 42,000 50,000

Additional information:

1. The company plant is highly automated. Variable manufacturing costs total $3 per unit. The annual fixed manufacturing overhead is $450,000.

2. Variable selling and administrative expenses were $2 per unit sold. Annual fixed selling and administrative expenses totaled $100,000 annually.

3. The above costs stayed constant across the three years and the company uses a LIFO inventory flow assumption.

Required:

1. Complete the traditional income statement above for year 3.

2. Complete the following NOI Reconcile table (show full details of how you calculated the deferred and released amounts for any credit).

Reconciliation report Year 1 Year 2 Year 3

Variable costing NOI

FO deferred in Inventory

FO released from Inventory

Absorption costing NOI 0 (16,000)

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