During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows:

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:

ear ear Sales (@ $62 per unit) Cost of goods sold (@ $29 per unit) 1,178,000 1,798,000 841,000 551,000 Gross margin Selling and administrative expenses* 627,000 303,000 957,000 333,000 Net operating income S 324,000 $ 624,000 $3 per unit variable; $246,000 fixed each year The company's $29 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($264,000 24,000 units) Absorption costing unit product cost 29