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) $ 1,098,000 $ 1,708,000 Cost of goods sold (@ $39 per unit) 702,000 1,092,000 Gross margin 396,000 616,000 Selling and administrative expenses* 302,000 332,000 Net operating income $ 94,000 $ 284,000 * $3 per unit variable; $248,000 fixed each year. The companys $39 unit product cost is computed as follows: Direct materials $ 9 Direct labor 11 Variable manufacturing overhead 4 Fixed manufacturing overhead ($345,000 23,000 units) 15 Absorption costing unit product cost $ 39 Production and cost data for the first two years of operations are:

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.