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

Year

Year $2$

Sales $($@ $$62$ per unit$)$

$ $1,116,000$

$1,736,000$

Cost of goods sold $($@ $$38$ per unit$)$

$684,000$

$1\mathrm{.}264\mathrm{.}009$

Gross margin

$432,000$

$672,000$

Selling and administrative expenses$*$

$393,000$

$832,000$

Net operating income

$

$128,000$

$

$339,000$

$*$ $$3$ per unit variable; $$249,000$ fixed each year.

The company's $$38$ unit product cost is computed as follows:

Direct materials

Direct Labor

Variable manufacturing overhead

Fixed manufacturing overhead $($$$368,000=23,000$ units$)$

Absorption costing unit product cost

$

$7$

$11$

$4$

$16$

$ $38$

Forty percent of fixed manufacturing overhead Consists of wages and salaries, the remainder consists of depreciation charges production equipment and buildings.

Production and cost data for the first two years of operations are:

Units produced

Units sold

Yean $1$

$23,000$

$18,000$

Year $2$

$23,000$

$28,000$

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.