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

	Year 1	Year 2
Sales (@ $61 per unit)	$ 1,159,000	$ 1,769,000
Cost of goods sold (@ $40 per unit)	760,000	1,160,000
Gross margin	399,000	609,000
Selling and administrative expenses*	303,000	333,000
Net operating income	$ 96,000	$ 276,000

* $3 per unit variable; $246,000 fixed each year.

The companys $40 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	12
Variable manufacturing overhead	2
Fixed manufacturing overhead ($480,000 24,000 units)	20
Absorption costing unit product cost	$ 40

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

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

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.