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 (@ $40 per unit)		720,000			1,120,000
Gross margin		360,000			560,000
Selling and administrative expenses*		301,000			331,000
Net operating income	$	59,000		$	229,000

* $3 per unit variable; $247,000 fixed each year.

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

Direct materials	$	9
Direct labor		11
Variable manufacturing overhead		2
Fixed manufacturing overhead ($414,000 23,000 units)		18
Absorption costing unit product cost	$	40

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

	Year 1	Year 2
Units produced	23,000	23,000
Units sold	18,000	28,000

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.