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

	Year 1			Year 2
Sales (@ $61 per unit)	$	1,098,000		$	1,708,000
Cost of goods sold (@ $43 per unit)		774,000			1,204,000
Gross margin		324,000			504,000
Selling and administrative expenses*		308,000			338,000
Net operating income	$	\16,000\		$	166,000

* $3 per unit variable; $254,000 fixed each year.

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

Direct materials	$	9
Direct labor		10
Variable manufacturing overhead		4
Fixed manufacturing overhead ($460,000 23,000 units)		20
Absorption costing unit product cost	$	43

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	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.