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.

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows Year 1 Year 2 Sales (e $60 per unit) Cost of goods sold ( $38 per unit) $ 900,000 1,500,000 950,000 550,000 292,000 322,000 $ 138,000228,000 570,000 330,000 Gross margin Selling and administrative expenses Net operating income *$3 per unit variable; $247,000 fixed each year. The company's $38 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($300,000 20,000 units) Absorption costing unit product cost 12 2 15 $ 38 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 Units produced Units sold Year 1 Year 2 20,000 20,000 15,000 25,000