Antoine Manufacturing, Inc., plans to develop a new industrial-powered vacuum cleaner for household use that runs exclusively on rechargeable batteries. The product will take 6 months to design and test. The company expects the vacuum sweeper to sell 13,000 units during the first 6 months of sales; 27,000 units per year over the following 2 years; and 11,000 units over the final 6 months of the product's life cycle. The company expects the following costs:

Requirement:

1.	If Antoine prices the sweepers at $500 each, how much operating income will the company make over the product's life cycle? What is the operating income per unit?
2.	Excluding the initial product design costs, what is the operating income in each of the three sales phases of the product's life cycle, assuming the price stays at $500?
3.	How would you explain the change in budgeted operating income over the product's life cycle? What other factors does the company need to consider before developing the new vacuum sweeper?
4.	Antoine is concerned about the operating income it will report in the first sales phase. It is considering pricing the vacuum sweeper at $550 for the first 6 months and decreasing the price to $500 thereafter. With this pricing strategy, Arnold expects to sell 11,000 units instead of 13,000 units in the first 6 months, and the same number of units for the remaining life cycle. Assuming the same cost structure given in the problem, which pricing strategy would you recommend? Explain.

More Info - X Variable Cost per Unit Period Months 0-6 Months 7-12 $105 per unit Cost Design costs Production Marketing Distribution Production Marketing Distribution Production Marketing Distribution Total Fixed Cost for the Period $ 500,000 $ 1,300,000 $ 1,550,000 $ 230,000 $ 5,950,000 2,850,000 $ 805,000 $ 1,145,000 $ 585,000 $ 180,000 $10 per unit $85 per unit Months 13-36 $6 per unit $65 per unit Months 37-42 $5 per unit Print Done