During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 2 Sales (@ $62 per unit) Cost of goods sold (@ $35 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $930,000 $ 1,550,000 525,000 875,000 405,000 675,000 296,000 326,000 $ 109,000 $ 349,000 *$3 per unit variable: $251,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($320,000 20,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: Units produced Units sold Year 1 Year 2 20,000 20,000 15,000 25,000 $9 B 2 16 $ 35