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 (@ $33 per unit)	594,000	924,000
Gross margin	504,000	784,000
Selling and administrative expenses*	303,000	333,000
Net operating income	$ 201,000	$ 451,000

* $3 per unit variable; $249,000 fixed each year.

The companys $33 unit product cost is computed as follows:

Direct materials	$ 7
Direct labor	10
Variable manufacturing overhead	5
Fixed manufacturing overhead ($253,000 23,000 units)	11
Absorption costing unit product cost	$ 33

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.