5 During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows Year 1 Year 2 Sales ( $63 per unit) Cost of goods sold( $42 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,134,000 $1,764,000 1,176,000 588,000 300,00 330,000 $178,00e 258,000 756,000 378,00e ints eBook $3 per unit variable; $246,000 fixed each year. Print eferences The company's $42 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($414,000 23,000 units) Absorption costing unit product cost 13 18 $ 42 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings Production and cost data for the first two years of operatons are