During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $62 per unit) Cost of goods sold (@ $40 per unit) Year 2 $ 1,798,000 1,160,000 Year 1 $ 1,178,000 760,000 418,000 Selling and administrative expenses* 312,000 Net operating income $ 106,000 $ 296,000 Gross margin 638,000 342,000 * $3 per unit variable; $255,000 fixed each year. The company's $40 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 + 24,000 units) Absorption costing unit product cost $ 8 255 15 $ 40 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: Units produced Units sold Year 1 Year 2 24,000 24,000 19,000 29,000 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.