AutoFido Manufacturing Ltd. is a well-known manufacturer of high tech products. The president of AutoFido has decided he would like to manufacture an AI droid to take care of pets. It is rather rudimentary and will be able to walk, feed and entertain man's best friend. 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 more advanced technology.

One time R & D costs are expected to be $2,400,000. Fixed production costs are anticipated to be $12,500 per month. Fixed marketing costs will be $20,000 per month for the first three years, dropping to $5,000 per month for the last year. Fixed distribution costs will be $20,000 per month for the first three years, and $10,000 per month for the last year.

Variable production costs will be $3,500 per unit for all four years. Variable distribution costs will be $50 per unit for the first three years, and $25 per unit for the last year. There are no variable marketing costs.

AutoFido expects to sell 400 units per month for the first three years, dropping to 100 units per month in the last year before the product becomes obsolete. The anticipated selling price is $5,000 per unit.

Required:

a. Prepare a projected life cycle income statement for the new product line.

b. How much profit, on average, will AutoFido make on each Falcon? (Round your answer to the nearest cent, i.e. 2 decimal places)

c. If research shows the highest price customers will be willing to pay is $3,999 per unit, should AutoFido proceed with the AI droid, and why?

d. If the only cost AutoFido can reduce is Variable Production costs, and they require full cost + 10%, what must be the new variable production cost per unit?