During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows:

* $3 per unit variable; $255,000 fixed each year

The companys $34 unit product cost is computed as follows:

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 two years are:

a) Prepare a variable costing contribution format income statement for each year.

b)