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During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 594,000 540,000 Year 2 Sales (@ $63 per unit) Cost of goods sold ( $33 per unit) $1,134,000 $1,764,000 924,000 Gross margin Selling and administrative expenses* 840,000 379,200 349,200 Net operating income $ 190,800 $460,800 $3 per unit variable; $295,200 fixed each year. The company's $33 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($322,000 23,000 units) Absorption costing unit product cost $ 33 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 Year1 23,000 18,000 Year 2 23,000 28,000