Year $1$

Year $2$

Sales $($@ $$63$ per unit$)$

$ $1,008,000$

$ $1,638,000$

Cost of goods sold $($@ $$38$ per unit$)$

$608,000$

$988,000$

Gross margin

$400,000$

$650,000$

Selling and administrative expenses$*$

$302,000$

$332,000$

Net operating income

$ $98,000$

$ $318,000$

$*$ $$3$ per unit variable; $$254,000$ fixed each year.

The company$$s $$38$ unit product cost is computed as follows:

Direct materials

$ $6$

Direct labor

$9$

Variable manufacturing overhead

$3$

Fixed manufacturing overhead $($$$420,000-$: $21,000$ units$)$

$20$

Absorption costing unit product cost

$ $38$

Production and cost data for the first two years of operations are:

$$

Year $1$

Year $2$

Units produced

$21,000$

$21,000$

Units sold

$16,000$

$26,000$

Required:

$1$ 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.