Year 1 $ 1,008,000 704,000 During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of goods sold (@ $44 per unit) Year 2 $ 1,638,000 1,144,000 Gross margin Selling and administrative expenses* 304,000 302,000 494,000 332,000 Net operating income $ 2,000 $ 162,000 * $3 per unit variable; $254,000 fixed each year. The company's $44 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($420,000 21,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced Units sold 21,000 21,000 16,000 26,000 Required: $ 9 13 2 20 $ 44 1. Using variable costing, what is the unit product cost for both years? 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.