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)	$ 976,000	$ 1,586,000
Cost of goods sold (@ $36 per unit)	576,000	936,000
Gross margin	400,000	650,000
Selling and administrative expenses*	302,000	332,000
Net operating income	$ 98,000	$ 318,000

* $3 per unit variable; $254,000 fixed each year.

The companys $36 unit product cost is computed as follows:

Direct materials	$ 8
Direct labor	13
Variable manufacturing overhead	2
Fixed manufacturing overhead ($273,000 21,000 units)	13
Absorption costing unit product cost	$ 36

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

	Year 1	Year 2
Units produced	21,000	21,000
Units sold	16,000	26,000

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.

Required 2: What is the variable costing net operating income in Year 1 and in Year 2?

1. Required: Variable costing net operating income (loss) for year 1 and year 2
2. Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing for year 1 and year 2
3. Absorption costing net operating income for year 1 and year 2