Following a strategy of product differentiation, Cold Lake Company makes a high-end appli- ance, AP15. Cold Lake Company presents the following data for years 1 and 2. Cold Lake Company produces no defective units, but it wants to reduce direct 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 and customer-service costs depend on the number of customers that the customer and service functions are de- signed to support. Neither conversion costs nor customer-service costs are affected by changes in actual volume. Cold Lake Company has 46 customers in year 1 and 50 customers in year 2. The industry market size for high-end appliances increased 5% from year 1 to year 2. What is the Cold Lake Company's operating income for year 1? Units of AP15 produced and sold Selling price Direct materials (square metres) Direct materials costs per square metre Manufacturing capacity for AP15 (units) Total manufacturing conversion costs Manufacturing conversion costs (per unit of capacity) Selling and customer-service capacity (customers) Total selling and customer-service costs Cost per customer of selling and customer-service capacity 5124M $4M $1.44M 5124M -$805K Year 1 Year 2 20,000 21,000 $200 $220 60,000 61,500 $20 $22 25,000 25,000 $1,000,000 $1,100,000 $40 $44 60 58 $360,000 $362,500 $6,000 $6,250