Exercise Five (10 Points): Following a strategy of product differentiation, Cold Lake Company makes a high-end appliance, AP15. Cold Lake Company presents the data in the table for years 1 and 2. Cold Lake Company produces no defective units, but it wants to reduce drect materials usage per unit of AP15 in year 2. Manufacturing conversion costs in each year depend on production capacity, defined in terms of AP15 units that can be produced. Selling costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs nor selling costs are affected by changes in actual volume. Required: 1. Calculate the change in operating income of Cold Lake Company in years 1 and 2 . Required: 1. Calculate the change in operating income of Cold Lake Company in years 1 and 2. 2. Calculate the growth components of changes in operating income between years 1 and 2 . Actual units of output produced in year 1 Actual units of input in year 2 Input required to produce year 2 output in year 1 Cost effect of growth for variable costs: Input required to produce year 2 output in year 1 Actual units of inputs to produce year 1 output Input price in year 1 Cost effect of growth for variable costs Cost effect of growth for fixed casts: \begin{tabular}{|c|c|c|} \hline & castsConversion & Selling costs \\ \hline \multicolumn{3}{|l|}{ Total Capacity } \\ \hline \multicolumn{3}{|l|}{ Actual units of capacity in year 1} \\ \hline \multicolumn{3}{|l|}{ Price per unit of capacity in year 1} \\ \hline \multicolumn{3}{|l|}{ Cost effect of growth for fixed costs } \\ \hline \multicolumn{3}{|l|}{ Change in operating income due to growth: } \\ \hline \multicolumn{3}{|l|}{ Revenue effect of growth } \\ \hline \multicolumn{3}{|l|}{ Variable cost effect of growth } \\ \hline \multicolumn{3}{|l|}{ Fixed cost effect of growth } \\ \hline Change in operating income due to growth & & \\ \hline \end{tabular}