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)	$	990,000	$	1,590,000
Cost of goods sold (@ $38 per unit)		627,000		1,007,000
Gross margin		363,000		583,000
Selling and administrative expenses*		293,700		323,700
Net operating income	$	69,300	$	259,300

* $3 per unit variable; $244,200 fixed each year.

The companys $38 unit product cost is computed as follows:

Direct materials	$	5
Direct labor		12
Variable manufacturing overhead		3
Fixed manufacturing overhead ($387,000 21,500 units)		18
Absorption costing unit product cost	$	38

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	21,500	21,500
Units sold	16,500	26,500

Required:

1.	Prepare a variable costing contribution format income statement for each year.

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 2 Year 1 Sales $60 per unit) 990,000 1,590,000 627,000 1,007,000 Cost of goods sold $38 per unit) 363,000 Gross margin 583,000 323,700 Selling and administrative expenses 293,700 Net operating income 69,300 259,300 $3 per unit variable; $244,200 fixed each year. The company's $38 unit product cost is computed as follows: Direct materials 5 Direct labor 12 Variable manufacturing overhead Fixed manufacturing overhead ($387,000 21,500 units) 18 38 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: Year 2 Year 1 Units produced 21,500 21,500 Units sold 16,500 26,500