During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows Year Sales ( $61 per unit) cost of goods sold (e $42 per unit) Gross margin Selling and administrative expenses* Net operating income 1,098,000 1,708,000 1,176,000 532,000 333,000 756,000 342,000 303,000 $ 139,00 199,000 $3 per unit variable; $249,000 fixed each year The company's $42 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead rixed manufacturing overhead ($437,000 23,000 units) Absorption costing unit produet cost 13 19 s 42 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: Next >