During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1, 240 , 000 $ 1, 860 , 000 Cost of goods sold (@ $34 per unit) 680 , 000 1, 020 , 000 Gross margin 560 , 000 840, 000 Selling and administrative expenses* 308 , 000 338 , 000 Net operating income $ \\252 , 000\\ $ 502 , 000 * $3 per unit variable; $248,000 fixed each year. The company's $34 unit product cost is computed as follows: Direct materials $ 10 Direct labor 10 Variable manufacturing overhead 2 Fixed manufacturing overhead ($300, 000 + 25, 000 units) 12 Absorption costing unit product cost $ 34 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: Year 1 Year 2 Units produced 25, 000 25, 000 Units sold 20 ,000 30, 000Question # 3 Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Absorption costing net operating income