During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 2 Sales (@$61 per unit) Cost of goods sold (@ $34 per unit) Gross margin Selling and administrative expenses Net operating income 1,098,000 $ 1,708,000 952,000 756,000 486,000 304,000 182,000 422,000 $3 per unit variable; $250,000 fixed each year. The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($391,000 Absorption costing unit product cost 10 23,000 units) 17 3 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 Units produced Units sold Year 1 23,000 1B,000 Year 2 23,000 28,000