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During Heaton Company s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales ( @

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:
Year 1 Year 2
Sales (@ $60 per unit) $ 1,080,000 $ 1,680,000
Cost of goods sold (@ $38 per unit)684,0001,064,000
Gross margin 396,000616,000
Selling and administrative expenses*308,000338,000
Net operating income $ 88,000 $ 278,000
* $3 per unit variable; $254,000 fixed each year.
The companys $38 unit product cost is computed as follows:
Direct materials $ 9
Direct labor 10
Variable manufacturing overhead 4
Fixed manufacturing overhead ($345,000-: 23,000 units)15
Absorption costing unit product cost $ 38
Production and cost data for the first two years of operations are:
Year 1 Year 2
Units produced 23,00023,000
Units sold 18,00028,000
Required:
1. Using variable costing, what is the unit product cost for both years?
2. What is the variable costing net operating income in Year 1 and in Year 2?
3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

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