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)	$	992,000		$	1,612,000
Cost of goods sold (@ $32 per unit)		512,000			832,000
Gross margin		480,000			780,000
Selling and administrative expenses*		302,000			332,000
Net operating income	$	178,000		$	448,000

* $3 per unit variable; $254,000 fixed each year.

The company's $32 unit product cost is computed as follows:

Direct materials	$	8
Direct labor		9
Variable manufacturing overhead		2
Fixed manufacturing overhead ($273,000 21,000 units)		13
Absorption costing unit product cost	$	32

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	21,000	21,000
Units sold	16,000	26,000

Required:

1. What is the variable costing net operating income in Year 1 and in Year 2?

2. Reconcile the absorption costing and the variable costing net operating income figures for each year.