During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $37 per unit) 629,000 999,000 Gross margin 425,000 675,000 Selling and administrative expenses* 298,000 328,000 Net operating income $ 127,000 $ 347,000 * $3 per unit variable; $247,000 fixed each year. The companys $37 unit product cost is computed as follows: Direct materials $ 6 Direct labor 11 Variable manufacturing overhead 3 Fixed manufacturing overhead ($374,000 22,000 units) 17 Absorption costing unit product cost $ 37 Production and cost data for the first two years of operations are:

Units produced year 1 22,000 year 2 22,000 Units sold year 1 17,000 year 2 27,000 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.