During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows ear $ 1,178,000 ear Sales (@ $62 per unit) Cost of goods sold ( $ 1,798,000 $37 per unit) 703,0001,073,000 Gross margin Selling and administrative expenses 475,000 368,600 725,000 398,600 Net operating income S 106,400 326,400 $3 per unit variable: $311,600 fixed each year. The company's $37 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($456,000 9 24,000 units)19 $ 37 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 Year 2 24 000 24.000 19000 29.000