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

Year 1 Year 2

Sales (@61 per unit) 1,159,000 1,769,000

Cost Of Goods Sold (@36$ per unit) 684,000 1,044,000

Gross Margin 475,000 725,000

Selling And Administrative expenses* 311,000 341,000

Net Operating Income 164,000 384,000

*3$ per unit variable, 254,000 fixed each year.

The company's 36$ unit product cost is computed as follows

Direct Materials: 7$

Direct Labor: 11$

Variable Manufacturing Overhead : 1$

Fixed Manufacturing Overhead (408,000/24,000 units)=17$

Absorption Costing unit product cost: 36$

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production cost and cost data for the two years are:

Year 1 Year 2

Units Produced 24,000 24,000

Units Sold 19,000 29,000

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).