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4-19 (Algo) Variable Costing Income Statement; Reconciliation [LO4-2, LO4-3] During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 960,000 $ 1,560,000 Cost of goods sold (@ $36 per unit) 576,000 936,000 Gross margin 384,000 624,000 Selling and administrative expenses* 298,000 328,000 Net operating income $ 86,000 $ 296,000 * $3 per unit variable; $250,000 fixed each year. The companys $36 unit product cost is computed as follows: Direct materials $ 7 Direct labor 10 Variable manufacturing overhead 5 Fixed manufacturing overhead ($294,000 21,000 units) 14 Absorption costing unit product cost $ 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: Year 1 Year 2 Units produced 21,000 21,000 Units sold 16,000 26,000 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

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