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)	$ 915,000	$ 1,525,000
Cost of goods sold (@ $37 per unit)	555,000	925,000
Gross margin	360,000	600,000
Selling and administrative expenses*	296,000	326,000
Net operating income	$ 64,000	$ 274,000

* $3 per unit variable; $251,000 fixed each year.

The companys $37 unit product cost is computed as follows:

Direct materials	$ 9
Direct labor	13
Variable manufacturing overhead	2
Fixed manufacturing overhead ($260,000 20,000 units)	13
Absorption costing unit product cost	$ 37

Production and cost data for the first two years of operations 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.