During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,071,000 $ 1,701,000 Cost of goods sold (@ $37 per unit) 629,000 999,000 Gross margin 442,000 702,000 Selling and administrative expenses* 298,000 328,000 Net operating income $ 144,000 $ 374,000 * $3 per unit variable; $247,000 fixed each year. The companys $37 unit product cost is computed as follows: Direct materials $ 7 Direct labor 8 V