Sales (@ $62 per unit) Cost of goods sold (@ $35 per unit) Gross margin Selling and administrative expenses* Net operating income * $3 per unit variable; $254,000 fixed each year. During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: 21, eee Year 1 992, eee sse, eee 432, eee se2, eee \13e,eee\ The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($357, eee + Absorption costing unit product cost units) Year 2 $ 1,612, eee 91e, eee 7e2, eee 332, eee 37e,eee 6 11 1 $ 35 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 first two years of operations are: Units Units produced sold Year 1 21, eee 16, eee Year 2 21, eee 26, eee