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)	$	915,000		$	1,525,000
Cost of goods sold (@ $41 per unit)		615,000			1,025,000
Gross margin		300,000			500,000
Selling and administrative expenses*		292,000			322,000
Net operating income	$	8,000		$	178,000

* $3 per unit variable; $247,000 fixed each year.

The companys $41 unit product cost is computed as follows:

Direct materials	$	10
Direct labor		10
Variable manufacturing overhead		4
Fixed manufacturing overhead ($340,000 20,000 units)		17
Absorption costing unit product cost	$	41

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	20,000	20,000
Units sold	15,000	25,000

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.