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During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows:

	Year 1		Year 2
Sales (@ $60 per unit)	$	990,000	$	1,590,000
Cost of goods sold (@ $38 per unit)		627,000		1,007,000
Gross margin		363,000		583,000
Selling and administrative expenses*		293,700		323,700
Net operating income	$	69,300	$	259,300

* $3 per unit variable; $244,200 fixed each year.

The companys $38 unit product cost is computed as follows:

Direct materials	$	5
Direct labor		12
Variable manufacturing overhead		3
Fixed manufacturing overhead ($387,000 21,500 units)		18
Absorption costing unit product cost	$	38

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 two years are:

	Year 1	Year 2
Units produced	21,500	21,500
Units sold	16,500	26,500

Required:

1.	Prepare a variable costing contribution format income statement for each year.

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1 $ 990,000 1,590,000 627,000 ,007,000 Year 2 Sales ($60 per unit) Cost of goods sold (@ $38 per unit) Gross margin Selling and administrative expenses* 363,000 293,700 583,000 323,700 Net operating income $ 69,300 S 259,300 $3 per unit variable; $244,200 fixed each year The company's $38 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($387,000 21,500 units) 12 18 S 38 Absorption costing unit product cost 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 two years are: Units produced Units sold Year 1Year 2 21,500 16,500 26,500 21,500 Required 1. Prepare a variable costing contribution format income statement for each year

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