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

* $3 per unit variable; $253,000 fixed each year.

The companys $38 unit product cost is computed as follows:

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

Required:

1. Using variable costing, what is the unit product cost for both years (one combined answer)?
2. What is the variable costing net operating income in Year 1 and in Year 2 (two separate answers)?
3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

\begin{tabular}{|l|l|l|} \hline \multicolumn{2}{|c|}{ Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes } \\ \hline Variable costing net operating income (loss) & Year 1 & Year 2 \\ \hline Add(deduct)fixedmanufacturingoverheaddeferredin(releasedfrom)inventoryunderabsorptioncosting & & \\ \hline Absorption costing net operating income & & \\ \hline \end{tabular} \begin{tabular}{lrr} & Year 1 & \multicolumn{1}{c}{ Year 2 } \\ Sales (@ $61 per unit) & $1,159,000 & $1,769,000 \\ Cost of goods sold (@ \$38 per unit) & 722,000 & 1,102,000 \\ \cline { 2 - 3 } Gross margin & 437,000 & 667,000 \\ Selling and administrative expenses* & 310,000 & 340,000 \\ Net operating income & $127,000 & $327,000 \\ \hline \end{tabular}