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

	Year 1	Year 2
Sales (@ $62 per unit)	$ 1,240,000	$ 1,860,000
Cost of goods sold (@ $42 per unit)	840,000	1,260,000
Gross margin	400,000	600,000
Selling and administrative expenses*	309,000	339,000
Net operating income	$ 91,000	$ 261,000

* $3 per unit variable; $249,000 fixed each year.

The companys $42 unit product cost is computed as follows:

Direct materials	$ 10
Direct labor	9
Variable manufacturing overhead	4
Fixed manufacturing overhead ($475,000 25,000 units)	19
Absorption costing unit product cost	$ 42

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

	Year 1	Year 2
Units produced	25,000	25,000
Units sold	20,000	30,000

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.