During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@$63 per unit) Cost of goods sold (@ $38 per unit) Gross margin Selling and administrative expenses* Net operating income Year 2 Year 1 $ 1,008,000 608,000 $ 1,638,000 988,000 400,000 297,000 650,000 327,000 $ 103,000 $ 323,000 * $3 per unit variable: $249,000 fixed each year. The company's $38 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($399,000 21,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: Units produced Units sold Required: Year 1 Year 2 21,000 16,000 21,000 26,000 $7 9 3 19 $ 38 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.