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

	Year 1	Year 2
Sales (@ $64 per unit)	$ 960,000	$ 1,600,000
Cost of goods sold (@ $43 per unit)	645,000	1,075,000
Gross margin	315,000	525,000
Selling and administrative expenses*	291,000	321,000
Net operating income	$ 24,000	$ 204,000

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

The companys $43 unit product cost is computed as follows:

Direct materials	$ 10
Direct labor	13
Variable manufacturing overhead	5
Fixed manufacturing overhead ($300,000 20,000 units)	15
Absorption costing unit product cost	$ 43

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

	Year 1	Year 2
Units produced	20,000	20,000
Units sold	15,000	25,000

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.