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

	Year 1	Year 2
Sales (@ $63 per unit)	$ 1,197,000	$ 1,827,000
Cost of goods sold (@ $32 per unit)	608,000	928,000
Gross margin	589,000	899,000
Selling and administrative expenses*	311,000	341,000
Net operating income	$ 278,000	$ 558,000

* $3 per unit variable; $254,000 fixed each year.

The companys $32 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	9
Variable manufacturing overhead	3
Fixed manufacturing overhead ($336,000 24,000 units)	14
Absorption costing unit product cost	$ 32

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.