During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1	Year 2
Sales (@ $62 per unit)	$ 1,054,000	$ 1,674,000
Cost of goods sold (@ $34 per unit)	578,000	918,000
Gross margin	476,000	756,000
Selling and administrative expenses*	304,000	334,000
Net operating income	$ 172,000	$ 422,000

* $3 per unit variable; $253,000 fixed each year.

The companys $34 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	11
Variable manufacturing overhead	4
Fixed manufacturing overhead ($286,000 22,000 units)	13
Absorption costing unit product cost	$ 34

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.