During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 year 2

Sales (@ $64 per unit) $ 960,000 $ 1,600,000 Cost of goods sold (@ $38 per unit) 570,000 950,000 Gross margin 390,000 650,000 Selling and administrative expenses* 296,000 326,000 Net operating income $ \94,000\ $ 324,000 * $3 per unit variable; $251,000 fixed each year. The companys $38 unit product cost is computed as follows: Direct materials $ 6 Direct labor 9 Variable manufacturing overhead 4 Fixed manufacturing overhead ($380,000 20,000 units) 19 Absorption costing unit product cost $ 38 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operatons are: Year 1 year 2 Units produced 20,000 20,000 Units sold 15,000 25,000 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.