During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $60 per unit) Year 1 $ 1,020,000 Year 2 $ 1,620,000 Cost of goods sold (@ $38 per unit) 646,000 1,026,000 Gross margin 374,000 Selling and administrative expenses* 297,000 594,000 327,000 Net operating income $ 77,000 $ 267,000 * $3 per unit variable; $246,000 fixed each year. The company's $38 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($352,000 22,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: Units produced Units sold Year 1 Year 2 22,000 17,000 22,000 27,000 $ 5 12 5 16 $ 38 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.