• Attachment 1
  • Attachment 2

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:Year 1Year 2Sales (@ $62 per unit)$ 1, 240 , 000$ 1, 860 , 000Cost of goods sold (@ $34 per unit)680 , 0001, 020 , 000Gross margin560 , 000840, 000Selling and administrative expenses*308 , 000338 , 000Net operating income$ 252 , 000$502 , 000* $3 per unit variable; $248,000 fixed each year.The company’s $34 unit product cost is computed as follows:Direct materials$ 10Direct labor10Variable manufacturing overhead2Fixed manufacturing overhead ($300, 000 + 25, 000 units)12Absorption costing unit product cost$ 34Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges onproduction equipment and buildings.Production and cost data for the first two years of operations are:Year 1Year 2Units produced25, 00025, 000Units sold20 ,00030, 000