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

Year 1Year 2Sales (@ $63 per unit)$ 1,260,000$ 1,890,000Cost of goods sold (@ $38 per unit)760,0001,140,000Gross margin500,000750,000Selling and administrative expenses*311,000341,000Net operating income$ 189,000$ 409,000

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

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

Direct materials$ 10Direct labor10Variable manufacturing overhead3Fixed manufacturing overhead ($375,000 25,000 units)15Absorption costing unit product cost$ 38

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

Year 1Year 2Units produced25,00025,000Units sold20,00030,000

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.