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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 (@ $63 per unit) | $ 1,197,000 | $ 1,827,000 |
| Cost of goods sold (@ $39 per unit) | 741,000 | 1,131,000 |
| Gross margin | 456,000 | 696,000 |
| Selling and administrative expenses* | 307,000 | 337,000 |
| Net operating income | $ 149,000 | $ 359,000 |
* $3 per unit variable; $250,000 fixed each year.
The companys $39 unit product cost is computed as follows:
| Direct materials | $ 7 |
| Direct labor | 8 |
| Variable manufacturing overhead | 4 |
| Fixed manufacturing overhead ($480,000 24,000 units) | 20 |
| Absorption costing unit product cost | $ 39 |
Production and cost data for the first two years of operations are:
| | Year 1 | Year 2 |
| Units produced | 24,000 | 24,000 |
| Units sold | 19,000 | 29,000 |
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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