Problem 6-19 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year s1,140,000 1,740,000 Sales (e $60 per unit) Cost of goods sold ( $36 per unit) Gross margin Selling and administrative expenses*307,000 Net operating income 684 ' 000'-- 456,000:044,00 696,000 337,000 s 1149,0001 $ 359,000 $3 per unit variable; $250,000 fixed each year The company's $36 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead ($384,000 24,000 units) Absorption costing unit product cost 16 36 Forty percent of flixed 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 produced Units sold 24,000 24,000 19,000 29,000