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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 (@ $62 per unit) | $ 1,178,000 | $ 1,798,000 |
| Cost of goods sold (@ $42 per unit) | 798,000 | 1,218,000 |
| Gross margin | 380,000 | 580,000 |
| Selling and administrative expenses* | 310,000 | 340,000 |
| Net operating income | $ 70,000 | $ 240,000 |
* $3 per unit variable; $253,000 fixed each year.
The companys $42 unit product cost is computed as follows:
| Direct materials | $ 7 |
| Direct labor | 11 |
| Variable manufacturing overhead | 4 |
| Fixed manufacturing overhead ($480,000 24,000 units) | 20 |
| Absorption costing unit product cost | $ 42 |
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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