During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: $ Sales (@ $62 per unit) Cost of goods sold @ $28 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $1,178,000 532,000 646,000 309,000 $ 337,000 Year 2 1,798,000 812,000 986,000 339,000 $ 647,000 *$3 per unit variable; $252,000 fixed each year. The company's $28 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($264,000 - 24,000 units) Absorption costing unit product cost ,000 units) $ 28 $ 28 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 Year 1 24,000 19,000 Year 2 24,000 29,000 Required: 1. Prepare a variable costing contribution format income statement for each year. Heaton Company Variable Costing Income Statement Year 1 Year 2 Variable expenses: Total variable expenses Fixed expenses: Total fixed expenses 0 0 Net operating income (loss) $ $ 0 2. Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes (Losses) Year 1 Year 2 Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss) 0 $