PROBLEM 5-12 Variable Costing Income Statement; Reconciliation (LO2, LO3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 .xls $1,250,000 900,000 Sales (@ $25 per unit). Cost of goods sold (@ $18 per unit). Gross margin Selling and administrative expenses Net operating income... *$2 per unit variable: $130,000 fixed each year. $1,000,000 720,000 280,000 210,000 $ 70,000 350,000 230,000 $ 120,000 The company's $18 unit product cost is computed as follows: $ 4 7 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($270,000 - 45,000 units)... Absorption costing unit product cost. 6 $18 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder con- sists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Year 1 Year 2 Units produced.. Units sold. 45,000 40,000 45,000 50,000 Required: 1. Prepare a variable costing contribution format income statement for each year. 2. Reconcile the absorption costing and the variable costing net operating income figures for each year