Reference no: EM132778653

Question - MacDonald Manufacturing Ltd. is a well-known manufacturer of high tech products. The president of MacDonald has decided he would like to manufacture a new design, the Eagle. Based on his experience in the industry, he believes the new product will be a popular item for four years, after which it will be obsolete due to new technology.

Design costs budgeted to be $400,000. Fixed production costs budgeted to be $7,500 per month. Fixed marketing costs will be $2,000 per month for the first three years, dropping to $500 per month for the last year. Fixed distribution costs will be $2,000 per month for the first three years, and $1,000 per month for the last year.

Variable production costs will be $250 per unit for all four years. Variable distribution costs will be $20 per unit for the first three years, and $24 per unit for the last year. There are no variable marketing costs.

MacDonald expects to sell 40 units per month at $1,500 each for the first three years, dropping to 10 units per month at $1,250 in the last year before the product becomes obsolete.

Required -

a. Show a Projected Life-cycle Income Statement for the new product line.

b. How much profit, on average, will MacDonald make on each Eagle?