Zeron, a medical equipment company, is expanding its product line and plans to manufacture testing equipment that calibrates magnetic resonance imaging (MRI) machines. Zeron plans to manufacture the MRI testing equipment in batches of 100 units. The firm estimates that the variable costs of producing the first batch will equal $1,000,000, which is comprised of $150,000 in materials costs, $50,000 in variable overhead costs, and $800,000 in labor costs ($800,000 = 32,000 labor hours × $25 per labor hour).

While the materials and variable overhead costs are expected to remain constant over time, Zeron believes that labor costs will be subject to a learning curve. Specifically, Zeron estimates that the second batch of 100 units will only consume 22,400 labor hours. Zeron plans to price the MRI testing equipment at the average variable cost to produce batches 17 to 32 plus a 75% markup

Required:

a. What is the planned unit selling price of the MRI testing equipment?

b. What is the expected profit from the MRI testing equipment in year 1 if Zeron plans to produce 16 batches in the first year? Assume Zeron will incur fixed costs of $3 million per year to produce the MRI testing equipment.

c. What is the expected profit from the MRI testing equipment in year 2 if Zeron plans to produce batches 17–32 in the second year? Again, assume Zeron will incur fixed costs of $3 million per year to produce the MRI testing equipment.