Problem 6-19 Variable Costing Income Statement, Reconciliation [LO6-2, LO6-3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year Sales (@ $61 per unit) Cost of goods sold (@ $34 per unit) $ 915,000 $1,525,000 510,000 850,000 Gross margin Selling and administrative expenses 405,000 291,000 675,000 321,000 Net operating income S 114,000 354,000 $3 per unit variable; $246,000 fixed each year The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($260,000 20,000 units) 13 Absorption costing unit product cost $ 34 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: ear 2 20,000 20,000 15,000 25,000 ear Units produced Units sold