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During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year 2 Sales (@ $62 per unit) Cost of goods sold (@ $31 per unit) $ 930,000 $1,550,000 465,000 775,000 Gross margin Selling and administrative expenses* 465,000 298,000 775,000 328,000 Net operating income $ 167,000 447,000 $3 per unit variable; $253,000 fixed each year. The company's $31 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($220,000 10 20.000 units) 11 S 31 Absorption costing unit product cost 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 two years are: Units produced Units sold Year 1Year 2 20,000 20,000 15,000 25,000