During Heaton Company's first two years of operations, the company reported absorption costing operating income as follows: Year 1 Year 2 Sales $61 per unit 1,159,000 1,769,000 Cost of goods sold $41 per unit) 779,000 1,189,000 380,000 Gross margin 580,000 309,000 339,000 Selling and administrative expenses* 71,000 241,000 Net operating income $3 per unit variable; $252,000 fixed each year. The company's $41 unit product cost is computed as follows Direct materials 10 Direct labor 12 Variable manufacturing overhead Fixed manufacturing overhead ($360,000 24,000 units 15 Absorption costing unit product cost 41 Forty percent of fixed manufacturing overhead consists of wages and salaries, the remainder consists of depreciation charges production equipment and buildings. Production and cost data for the two years are: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000