During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@$64 per unit) Cost of goods sold (@ $41 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,024,000 656,000 368,000 301,000 Year 2 $ 1,664,000 1,066,000 598,000 331,000 $ 67,000 $ 267,000 $3 per unit variable; $253,000 fixed each year. The company's $41 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($336,000 21,000 units) Absorption costing unit product cost $ 8 12 5 16 $ 41 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced Units sold 21,000 21,000 16,000 26,000