2. Reconcile the absorption costing EBIT and the variable costing EBIT figures for each year by computing the deferred/released fixed overhead for each year and applying the proper adjustments. 

During Heaton Company's first two years of operations, the company reported the absorption costing income statement as follows: Sales (25 selling price per unit) -Cost of goods sold Gross profit -Selling, general and administrative expenses (variable 2 per unit, fixed 130,000 per year) EBIT under absorption costing Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit (270,000 / 45,000 units) Absorption costing manufacturing cost per unit Production and sales data for the two years are: Year 1 45,000 40,000 Units produced Units sold Year 1 Year 2 45,000 50,000 1,000,000 -720,000 280,000 -210,000 70,000 The company's manufacturing cost per unit under absorption costing for both years is computed as follows: 4 7 Year 2 1 6 18 1,250,000 -900,000 350,000 -230,000 120,000 Note: Initial inventory of finished goods for year 1 is zero as it is the first year of operations. WIP inventories are not considered (i.e., initial and ending WIP inventories are always set to zero). 1. Prepare a variable costing contribution margin income statement for each year (Remember, as always, to show all the intermediate computations required to obtain all the figures in the statement)