During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales $64 per unit) 1,216,000 1,856,000 627,000 Cost of goods sold (@$33 per unit) 957,000 589,000 Gross margin 899,000 339,000 Selling and administrative expenses 309,000 Net operating income 280,000 560,000 $3 per unit variable; $252,000 fixed each year. The company's $33 unit product cost is computed as follows: Direct materials 6 Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($336,000 24,000 units) 14 33 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: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000