During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $39 per unit) Year 1 945,500 604,500 Year 2 $ 1,555,500 9 94,500 Gross margin Selling and administrative expenses 341,099, 288,304 561.000 318,300 Net operating income $ 52,700 $ 242,700 * $3 per unit variable; $241,800 fixed each year, The company's $39 unit product cost is computed Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($410,000 + 20,500 units) w 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 Year 1 20,500 15,500 Year 2 20,500 25,500 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 Net operating income (loss) 2. Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses and deductions should be indicated with a minus sign.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes 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)