During Heaton Company's first two years of operations, the company reported operating profit as follows (absorption costing basis)

Direct materials E 4 Direct labour Variable manufacturing overhead Fixed manufacturing overhead ($ 270,000/45,000 units) 6 Unit product cost 18Year 1 Year 2 Units produced 45 000 45,000 Units sold 40,000 50.000Year 1 Year 2 Revenue (@ $ 25) $ 1,000,000 $ 1,250,000 Less cost of goods sold: Beginning inventory O 90,000 Add cost of goods manufactured (@ $ 18) 810,000 810,000 Goods available for sale 810,000 900,000 Less ending inventory (@ $ 18) 90,000 0 Cost of goods sold 720,000 900,000 Gross margin 280,000 350,000 Less selling and administrative expenses* 210,000 230,000 Operating profit $ 70,000 E 120,000