During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales ( $62 per unit) Cost of goods sold ( $40 per unit) Gross margin Selling and administrative expenses* $ 1,178,000 760,000 1,798,000 1,160,000 418,000 638,000 338,000 308,000 $ \110,000V 300,000 Net operating income $3 per unit variable; $251,000 fixed each year. The company's $40 unit product cost is computed as follows: Direct materials S 6 Direct labor 10 Variable manufacturing overhead Fixed manufacturing overhead ($480,000 24,000 units) 4 20 $ 40 Absorption costing unit product cost 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 2 Year 1 Units produced Units sold 24,000 24,000 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. Required 1 Required 2 Required 3 Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Absorption costing net operating income