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) $ 1,037,000 $ 1,647,000 Cost of goods sold (@ $39 per unit) 663,000 1,053,000 Gross margin 374,000 594,000 Selling and administrative expenses* 301,000 331,000 Net operating income $ \73,000\ $ 263,000 * $3 per unit variable; $250,000 fixed each year. The companys $39 unit product cost is computed as follows: Direct materials $ 9 Direct labor 8 Variable manufacturing overhead 4 Fixed manufacturing overhead ($396,000 22,000 units) 18 Absorption costing unit product cost $ 39 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 22,000 22,000 Units sold 17,000 27,000 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.