During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $60 per unit) Cost of goods sold (@ $32 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,200,000 640, eee 560,000 305,000 $ \255,000\ Year 2 $ 1,800,000 960,000 840,000 335,000 585,000 * $3 per unit variable; $245,000 fixed each year. The company's $32 unit product cost is computed as follows: $ 5 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($325,000 + 25,000 units) Absorption costing unit product cost 13 $ 32 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on E production equipment and buildings. E Production and cost data for the first two years of operations are: Units produced Units sold Year 1 Year 2 25,000 25,000 20,000 30,000 E Required: E 1. Using variable costing, what is the unit product cost for both years? E 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