During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:
| | Year 1 | Year 2 |
| -------------------- | ---------- | ---------- |
| Sales (@ $61 per unit) | $976,000 | $1,586,000 |
| Cost of goods sold (@ $36 per unit) | $576,000 | $936,000 |
| Gross margin | $400,000 | $650,000 |
| Selling and administrative expenses* | $298,000 | $328,000 |
| Net operating income | $102,000 | $322,000 |
* $3 per unit variable; $250,000 fixed each year.
The company's $36 unit product cost is computed as follows:
| | |
| -------------------------------------------------- | ---- |
| Direct materials | $6 |
| Direct labor | $9 |
| Variable manufacturing overhead | $3 |
| Fixed manufacturing overhead ($378,000 / 21,000 units) | $18 |
| Absorption costing unit product cost | $36 |
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.
