During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year Year 1 578,000 476,000 Sales (@ $62 per unit) Cost of goods sold ( $34 per unit) $1,054,000 $1,674,000 918,000 Gross margin Seling and administrative expenses* 756,000 333,000 303,000 Net operating income $ 173,000 $423,000 $3 per unit variable; $252,000 fixed each year, The company's $34 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($308,000 22,000 units) Absorption costing unit product cost $ 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 22.000 17,000 Year 2 22.000 27,000