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

Year 1 Year 2 Sales (@ $64 per unit) $ 1,152,000 $ 1,792,000

Cost of goods sold (@ $38 per unit) 684,000 1,064,000

Gross margin 468,000 728,000

Selling and administrative expenses* 307,000 337,000

Net operating income $ \161,000\ $ 391,000

* $3 per unit variable; $253,000 fixed each year.

The companys $38 unit product cost is computed as follows:

Direct materials $ 8

Direct labor $13

Variable manufacturing overhead $4

Fixed manufacturing overhead ($299,000 23,000 units) $13

Absorption costing unit product cost $ 38

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 23,000 23,000

Units sold 18,000 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.