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 (@ $30 per unit) 510,000 810,000 Gross margin 527,000 837,000 Selling and administrative expenses* 302,000 332,000 Net operating income $ 225,000 $ 505,000 * $3 per unit variable; $251,000 fixed each year. The companys $30 unit product cost is computed as follows: Direct materials $ 6 Direct labor 10 Variable manufacturing overhead 1 Fixed manufacturing overhead ($286,000 22,000 units) 13 Absorption costing unit product cost $ 30 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.

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