PLEASE EXPLAIN EACH STEP.

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year Ye 000 Sales ( $62 per unit) Cost of goods sold (@ $38 per unit) $ 1, 000 722,000 456,000 305,000 1,102,000 696,000 335,000 in Gross ma Selling and administrative expenses* $\151,000 S 361,000 Net operating income *$3 per unit variable; $248,000 fixed each year. The company's $38 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($408,000 24,000 units) Absorption costing unit product cost 17 $ 38 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 operatons are: Year 2 24.000 Year 1 24,000 Units produced 3. Reconcile the absorption costing and the variable costing net operating income figures for each year. Complete this question by entering your answers in the tabs below. Required 2 Required 1 Required 3 Reconcile the absorption costing and the variable costing net operating income figures for each year. (Enter any losses or deductions as a negative value.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Less: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income