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) $ 1,134,000 $ 1,764,000 Cost of goods sold (@ $35 per unit) 630,000 980,000 Gross margin 504,000 784,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ 199,000 $ 449,000 * $3 per unit variable; $251,000 fixed each year. The companys $35 unit product cost is computed as follows: Direct materials $ 6 Direct labor 10 Variable manufacturing overhead 2 Fixed manufacturing overhead ($391,000 23,000 units) 17 Absorption costing unit product cost $ 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: Year 1 Year 2 Units produced 23,000 23,000 Units sold 18,000 28,000 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.