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During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $61 per

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $61 per unit) $ 1,098,000 $ 1,708,000 Cost of goods sold (@ $40 per unit) 720,000 1,120,000 Gross margin 378,000 588,000 Selling and administrative expenses* 308,000 338,000 Net operating income $ 70,000 $ 250,000 * $3 per unit variable; $254,000 fixed each year. The companys $40 unit product cost is computed as follows: Direct materials $ 9 Direct labor 9 Variable manufacturing overhead 4 Fixed manufacturing overhead ($414,000 23,000 units) 18 Absorption costing unit product cost $ 40 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.

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