PROBLEM 5-11 Variable Costing Income Statement; Reconciliation [LO2, LO3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year 2 Sales ( $25 per unit) Cost of goods sold ( $18 per unit)................. Gross margin Selling and administrative expences Net operating income. $1,000,000 720,000 280,000 210,000 $ 70,000 $1,250,000 900,000 350,000 230,000 $ 120,000 $2 per unit variable; $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct labor 7 Fixed manufacturing overhead ($270,00045,000 unita) Abcorption costing unit product cost 6 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists depreciation charges on production equipment and buildings. Production and cost data for the two years are: Year 1 Year 2 45,000 50,000 Required 1. Prepare a variable costing contribution format income statement for each year 2. Reconcile the absorption costing and the variable costing net operating income figures for each ye