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 (@ $29 per unit)	493,000	783,000
Gross margin	578,000	918,000
Selling and administrative expenses*	304,000	334,000
Net operating income	$ 274,000	$ 584,000

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

The companys $29 unit product cost is computed as follows:

Direct materials	$ 7
Direct labor	9
Variable manufacturing overhead	2
Fixed manufacturing overhead ($242,000 22,000 units)	11
Absorption costing unit product cost	$ 29

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.