During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales ($63 per unit) Cost of goods sold (e $33 per unit) Gross margin Selling and administrative expenses* Net operating income Year 2 $ 1,575,000 825,000 750,000 Year 1 945,000 495,000 450,000 291,000 $ 159,000 $ 429,000 321,000 $3 per unit variable; $246,000 fixed each year. The company's $33 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($260,000 20,000 units) Absorption costing unit product cost $ 33 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are: Units produced Units sold Year 1 20,000 15,000 Year 2 20,000 25,000