During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (e $62 per unit) Cost of goods sold ( $35 per unit) Gross margin Selling and administrative expenses* Net operating income 1,054,000 1,674,000 595,000 945,000 729,000 303,000333,000 1156,0001 396,000 459,000 *$3 per unit variable; $252,000 fixed each year The company's $35 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($374,00022,000 units) Absorption costing unit product cost 17 $ 35 Forty percent of fixed manufacturing overhead consists of wages and salaries, the remainder consists of depreciation charges on production equipment and buildings Production and cost data for the first two years of operations are