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 Year 1 Year 2 Sales (e $64 per unit) Cost of goods sold ( $39 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,152,000 1,792,000 702,000 11092000_ 700,000 306,000336,000 1144,0001364,000 450,000 *$3 per unit variable; $252,000 fixed each year The company's $39 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($391,000 23,000 units) Absorption costing unit product cost 10 17 $ 39 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 operatons are: Units produced Units sold Year 1 Year 2 23,000 23, 000 18,000 28, 000