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) $ 1,071,000 $ 1,701,000 Cost of goods sold (@ $38 per unit) 646,000 1,026,000 Gross margin 425,000 675,000 Selling and administrative expenses* 304,000 334,000 Net operating income $ 121,000 $ 341,000 * $3 per unit variable; $253,000 fixed each year. The companys $38 unit product cost is computed as follows: Direct materials $ 7 Direct labor 10 Variable manufacturing overhead 3 Fixed manufacturing overhead ($396,000 22,000 units) 18 Absorption costing unit product cost $ 38 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 22,000 22,000 Units sold 17,000 27,000 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