During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 1,080,000 $ 1,680,000 Cost of goods sold (@ $34 per unit) 612,000 952,000 Gross margin 468,000 728,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ \163,000\ $ 393,000 * $3 per unit variable; $251,000 fixed each year. The companys $34 unit product cost is computed as follows: Direct materials $ 6 Direct labor 12 Variable manufacturing overhead 5 Fixed manufacturing overhead ($253,000 23,000 units) 11 Absorption costing unit product cost $ 34 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.