Exercise 2 (20 points) During Heaton Company's first two years of operations, the company reported the absorption costing income statement as follows: Sales (30 selling price per unit) Year 1 1,050,000 Year 2 1,350,000 -Cost of goods sold -723,333.33 -959,166.67 Gross profit 326,666.67 390,833.33 -Selling, general and administrative expenses (variable 2 per unit, fixed 130,000 per year) -200,000 -220,000 126,666.67 170,833.33 EBIT under absorption costing Information about the company's costs for both years is as follows: Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead (per year) Production and sales data for the two years are: 5 8 1 300,000 Units produced Units sold (FIFO) Year 1 45,000 35,000 Year 2 40,000 45,000 Note: Initial inventory of finished goods for year 1 is zero as it is the first year of operations. WIP inventories are not considered (i.e., initial and ending WIP inventories are always set to zero). Prepare a variable costing contribution margin income statement for each year. Reconcile the absorption costing and the variable costing net operating income figures for each year by computing fixed overhead released/deferred and making the proper adjustments.