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

	Year 1	Year 2
Sales (@ $61 per unit)	$ 1,098,000	$ 1,708,000
Cost of goods sold (@ $36 per unit)	648,000	1,008,000
Gross margin	450,000	700,000
Selling and administrative expenses*	299,000	329,000
Net operating income	$ 151,000	$ 371,000

* $3 per unit variable; $245,000 fixed each year.

The companys $36 unit product cost is computed as follows:

Direct materials	$ 9
Direct labor	11
Variable manufacturing overhead	3
Fixed manufacturing overhead ($299,000 23,000 units)	13
Absorption costing unit product cost	$ 36

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.