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 (@ $31 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,071,000 527,000 544,000 301,000 $ 243,000 Year 2 $ 1,701,000 837,000 864,000 331,000 $ 533,000 * $3 per unit variable; $250,000 fixed each year. The company's $31 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($330,000 22,000 units) Absorption costing unit product cost $ 7 8 1 15 $ 31 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 22,000 17,000 Year 2 22,000 27,000 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.