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) $ 1,080,000 $ 1,680,000 Cost of goods sold (@ $34 per unit) 612,000 952,000 Gross margin 468,000 728,000 Selling and administrative expenses* 306,000 336,000 Net operating income $ 162,000 $ 392,000 * $3 per unit variable; $252,000 fixed each year. The companys $34 unit product cost is computed as follows: Direct materials $ 6 Direct labor 10 Variable manufacturing overhead 3 Fixed manufacturing overhead ($345,000 23,000 units) 15 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: Year 1 Year 2 Units produced 23,000 23,000 Units sold 18,000 28,000

2.	Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses should be indicated by a minus sign.)