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

* $3 per unit variable; $250,000 fixed each year.

The companys $43 unit product cost is computed as follows:

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 operatons are:

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.

Sales (@ $63 per unit) Cost of goods sold (@ $43 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,071,000 731,000 340,000 301,000 $ 139,000 Year 2 $ 1,701,000 1,161,000 540,000 331,000 $ 209,000 $ 7 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($418,000 22,000 units) Absorption costing unit product cost $ 43 Units produced Units sold Year 1 22,000 17,000 Year 2 22,000 27,000