Problem 4-19 (Algo) Variable Costing Income Statement; Reconciliation [LO4-2, LO4-3] During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,197,000 $ 1,827,000 Cost of goods sold (@ $30 per unit) 570,000 870,000 Gross margin 627,000 957,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ 322,000 $ 622,000 * $3 per unit variable; $248,000 fixed each year. The companys $30 unit product cost is computed as follows: Direct materials $ 6 Direct labor 11 Variable manufacturing overhead 1 Fixed manufacturing overhead ($288,000 24,000 units) 12 Absorption costing unit product cost $ 30 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: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

*Please include formulas used to find numbers.*