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

	Year 1			Year 2
Sales (@ $60 per unit)	$	900,000		$	1,500,000
Cost of goods sold (@ $33 per unit)		495,000			825,000
Gross margin		405,000			675,000
Selling and administrative expenses*		300,000			330,000
Net operating income	$	105,000		$	345,000

* $3 per unit variable; $255,000 fixed each year.

The companys $33 unit product cost is computed as follows:

Direct materials	$	5
Direct labor		13
Variable manufacturing overhead		3
Fixed manufacturing overhead ($240,000 20,000 units)		12
Absorption costing unit product cost	$	33

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

	Year 1	Year 2
Units produced	20,000	20,000
Units sold	15,000	25,000

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.