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

* $3 per unit variable; $254,000 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:

Required:

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

2. Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses should be indicated by a minus sign.)