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

	Year 1		Year 2
Sales (@ $62 per unit)	$	1,054,000	$	1,674,000
Cost of goods sold (@ $37 per unit)		629,000		999,000
Gross margin		425,000		675,000
Selling and administrative expenses*		316,200		346,200
Net operating income	$	108,800	$	328,800
* $3 per unit variable; $265,200 fixed each year. The companys $37 unit product cost is computed as follows:

Direct materials Direct labor Variable manufacturing overhead 10 Fixed manufacturing overhead($374,000 17 +22,000 units) 37 Absorption costing unit product cost 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 Units produced Units sold 22.0 17,000 27,000 00 22,000 Required: 1. Prepare a variable costing contribution format income statement for each year Variable Costing Income Statement Year 1 Year 2 Variable expenses: Total variable expenses Fixed expenses: Total fixed expenses Net operating income (loss) 2. Reconcile the absorption costing and the variable costing net operating be income figures for each year. Losses indicated with a minus sign.) and deductions should ing ng ng Incomes Year 1 Year 2 Variable costing net operating income (loss) (deduct) fixed manufacturing overhead deferred in released from costing net operating income loss)