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)	$ 1,037,000	$ 1,647,000
Cost of goods sold (@ $35 per unit)	595,000	945,000
Gross margin	442,000	702,000
Selling and administrative expenses*	301,000	331,000
Net operating income	$ 141,000	$ 371,000

* $3 per unit variable; $250,000 fixed each year.

The companys $35 unit product cost is computed as follows:

Direct materials	$ 10
Direct labor	12
Variable manufacturing overhead	1
Fixed manufacturing overhead ($264,000 22,000 units)	12
Absorption costing unit product cost	$ 35

	Year 1	Year 2
Units produced	22,000	22,000
Units sold	17,000	27,000

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

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.