During Heaton Company$$s first two years of operations, it reported absorption costing net operating income as follows:

$$

Year $1$

$$

Year $2$

$$

Sales $($@ $$25$ per unit$)$

$$1,000,000$

$$

$$1,250,000$

$$

Cost of goods sold $($@ $$18$ per unit$)$

$720,000$

$$

$900,000$

$$

Gross margin

$280,000$

$$

$350,000$

$$

Selling and administrative expenses$*$

$210,000$

$$

$230,000$

$$

Net operating income

$$70,000$

$$

$$120,000$

$$

$*$$$2$ per unit variable; $$130,000$ fixed each year.

$$

$$

$$

$$

page $286$

The company$$s $$18$ unit product cost is computed as follows:

Direct materials

$$4$

$$

Direct labor

$7$

$$

Variable manufacturing overhead

$1$

$$

Fixed manufacturing overhead $($$$270,000-$: $45,000$ units$)$

$6$

$$

Absorption costing unit product cost

$$18$

$$

Production and cost data for the first two years of operations are:

$$

Year $1$

$$

Year $2$

$$

Units produced

$45,000$

$$

$45,000$

$$

Units sold

$40,000$

$$

$50,000$

$$

Required:

Using variable costing, what is the unit product cost for both years?

What is the variable costing net operating income in Year $1$ and in Year $2?$

Reconcile the absorption costing and the variable costing net operating income figures for each year.