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

	Year 1	Year 2
Sales (@ $63 per unit)	$ 1,197,000	$ 1,827,000
Cost of goods sold (@ $43 per unit)	817,000	1,247,000
Gross margin	380,000	580,000
Selling and administrative expenses*	309,000	339,000
Net operating income	$ 71,000	$ 241,000

* $3 per unit variable; $252,000 fixed each year.

The companys $43 unit product cost is computed as follows:

Direct materials	$ 8
Direct labor	13
Variable manufacturing overhead	2
Fixed manufacturing overhead ($480,000 24,000 units)	20
Absorption costing unit product cost	$ 43

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.

Required 3

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

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	Year 1	Year 2
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing
Absorption costing net operating income