During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:

Year 1 Year 2

Sales (@ $61 per unit) $ 976,000 $ 1,586,000

Cost of goods sold (@ $43 per unit) 688,000 1,118,000

Gross margin 288,000 468,000

Selling and administrative expenses* 296,000 326,000

Net operating income $ 8,000 $ 142,000

* $3 per unit variable; $248,000 fixed each year.

The company's $43 unit product cost is computed as follows:

Direct materials $ 10

Direct labor 11

Variable manufacturing overhead 3

Fixed manufacturing overhead ($399,000 21,000 units) 19

Absorption costing unit product cost $ 43

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 21,000 21,000

Units sold 16,000 26,000

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.

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (a $61 per unit) $ 976,000 $ 1,586,000 Cost of goods sold (6 $43 per unit) 688,000 1,118,000 Gross margin 288,000 468,000 Selling and administrative expenses* 296,000 326,000 Net operating income $ 8,000 $ 142,000 \" $3 per unit variable; $248,000 fixed each year. The company's $43 unit product cost is computed as follows: Direct materials $ 10 Direct labor 11 Variable manufacturing overhead 3 Fixed manufacturing overhead ($399,000 + 21,000 units) 19 Absorption costing unit product cost $ 43 Forty percent offixed 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 21,000 21,000 Units sold 16,000 26,000