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During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:
| | Year 1 | Year 2 |
| Sales (@ $61 per unit) | $ 1,098,000 | $ 1,708,000 |
| Cost of goods sold (@ $36 per unit) | 648,000 | 1,008,000 |
| Gross margin | 450,000 | 700,000 |
| Selling and administrative expenses* | 299,000 | 329,000 |
| Net operating income | $ 151,000 | $ 371,000 |
* $3 per unit variable; $245,000 fixed each year.
The companys $36 unit product cost is computed as follows:
| Direct materials | $ 9 |
| Direct labor | 11 |
| Variable manufacturing overhead | 3 |
| Fixed manufacturing overhead ($299,000 23,000 units) | 13 |
| Absorption costing unit product cost | $ 36 |
Production and cost data for the first two years of operations are:
| | Year 1 | Year 2 |
| Units produced | 23,000 | 23,000 |
| Units sold | 18,000 | 28,000 |
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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