During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,134,000 $ 1,764,000 Cost of goods sold (@ $37 per unit) 666,000 1,036,000 Gross margin 468,000 728,000 Selling and administrative expenses* 304,000 334,000 Net operating income $ 164,000 $ 394,000 * $3 per unit variable; $250,000 fixed each year. The companys $37 unit product cost is computed as follows: Direct materials $ 6 Direct labor 11 Variable manufacturing overhead 1 Fixed manufacturing overhead ($437,000 23,000 units) 19 Absorption costing unit product cost $ 37 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 23,000 23,000 Units sold 18,000 28,000 Required: 1. Prepare a variable costing contribution format income statement for each year.