During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows ear ear Sales (@ $62 per unit) Cost of goods sold (@ $40 per unit) $1,240,000 $ 1,860,000 800,000 1,200,000 Gross margin Selling and administrative expenses* 440,000 308,000 660,000 338,000 Net operating income $ 132,000 $ 322,000 $3 per unit variable; $248,000 fixed each year The company's $40 unit product cost is computed as follows S 10 Direct materials Direct labor Vari 13 16 S 40 able manufacturing overhead Fixed manufacturing overhead ($400,000 25,000 units) 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 ear 25,000 20,000 Year 2 25,000 30,000