Year 1	Year 2
Units produced	25,000	25,000
Units sold	20,000	30,000

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.

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: Sales (@ $62 per unit) Cost of goods sold (@ $36 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,240,000 720,000 520,000 311,000 $ 209,000 Year 2 $ 1,860,000 1,080,000 780,000 341,000 439,000 * $3 per unit variable; $251,000 fixed each year. The company's $36 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($275,000 = 25,000 units) Absorption costing unit product cost $ 8 13 4 11 $ 36 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 first two years of operations are