Administrative expenses

During Heaton Company’s first two years of operations, it reported absorption costing netoperating income as follows: 10Year 1 Year 2Sales (@ $25 per unit). . . . . . . . . . . . . . . . . $1,000,000 $1,250,000Cost of goods sold (@ $18 per unit). . . . . .$ 7,20,000 $9,00,000Gross margin . . . . . . . . . . . . . . . . . . . . . . . . $ 2,80,000 $3,50,000Selling and administrative expenses* . . . $ 2,10,000 $ 230,000Net operating income. . . . . . . . . . . . . . . . . . $ 70,000 $ 120,000The company’s $18 unit product cost is computed as follows:Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 4Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Fixed manufacturing overhead ($270,000 ÷ 45,000 units) . . . . . . . . . . 6Absorption costing unit product cost. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1840% of fixed manufacturing overhead consists of wages and salaries; the remainder consists ofdepreciation charges on production equipment and buildings.Production and cost data for the first two years of operations are:Year 1 Year 2Units produced . . . . . . . . . . . . . . . . . 45,000 45,000Units sold . . . . . . . . . . . . . . . . . . . . . . 40,000 50,000Required:i) Using variable costing, what is the unit product cost for both years?ii) What is the variable costing net operating income in Year 1 and in Year 2?iii) Reconcile the absorption costing and the variable costing net operating income figuresfor each year.