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 (@ $31 per unit)	527,000	837,000
Gross margin	527,000	837,000
Selling and administrative expenses*	302,000	332,000
Net operating income	$ 225,000	$ 505,000

* $3 per unit variable; $251,000 fixed each year.

The companys $31 unit product cost is computed as follows:

Direct materials	$ 5
Direct labor	10
Variable manufacturing overhead	2
Fixed manufacturing overhead ($308,000 22,000 units)	14
Absorption costing unit product cost	$ 31

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

	Year 1	Year 2
Units produced	22,000	22,000
Units sold	17,000	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.