During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) Cost of goods sold (@ $35 per unit) Gross margin Selling and administrative expenses* Net operating income * $3 per unit variable; $254,000 fixed each year. $ 1,134,000 $ 1,764,000 630,000 504,000 980,000 784,000 308,000 338,000 $ 196,000 $ 446,000 The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($345,000 23,000 units) Absorption costing unit product cost $ 7 10 3 15 $ 35 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 23,000 23,000 18,000 28,000 Units sold 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.