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)	$ 1,178,000	$ 1,798,000
Cost of goods sold (@ $35 per unit)	665,000	1,015,000
Gross margin	513,000	783,000
Selling and administrative expenses*	303,000	333,000
Net operating income	$ 210,000	$ 450,000

* $3 per unit variable; $246,000 fixed each year.

The companys $35 unit product cost is computed as follows:

Direct materials	$ 9
Direct labor	9
Variable manufacturing overhead	2
Fixed manufacturing overhead ($360,000 24,000 units)	15
Absorption costing unit product cost	$ 35

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

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

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.