Great Products Ltd has a range of products which are in regular demand but needs to introduce new products from time to time to maintain profitability. The following shows the forecast Income statement for the next 6 years before introducing new products.

Great Products Ltd Forecast Income statement

	2022	2023	2024	2025	2026	2027
	£M	£M	£M	£M	£M	£M
Sales	400	380	360	300	250	200
Cost of sales	200	190	180	150	125	100
Contribution	200	190	180	150	125	100
Marketing	8	9	8	6	4	4
Fixed expenses	80	70	60	60	60	60
Net Income	112	111	112	84	61	36

The company has an active Research and Development department and has one product ready for launch (The Maxilla) in 2022 and another (The Fantosa) being prepared for launch in 2024.

Each successful product is allocated a share of the Development budget. Disposal costs are charged in the year of disposal.

The products have the following estimates

	Maxilla	Fantosa
Allocated R & D	£70 Million	£20M
Estimated sales price per unit
2022	£80
2023	£65
2024	£55	£60
2025	£40	£50
2026		£50
2027		£45
Estimated variable costs	£30 per unit	£15 per unit
Marketing	2% of sales value	2% of sales value
Estimated unit sales 2022	800,000 units
2023	1,200,000 units
2024	600,000 units
2025	300,000 units
Disposal costs end of year 2025	200,000	No disposal costs

The lifecycle revenue less costs is expected to provide at least 10% return on sales taking the sales of the life cycle as a whole.

a) Define lifecycle costing and explain how the information provided by the method is used. (4 marks)

b i) Show the lifecycle of the Maxilla product and comment on your calculations. (5 marks)

  ii) Show the net income for each year assuming that the Maxilla product goes ahead

       (you are not required to show all the changes in each line item).        

c i) Assuming that Fantosa has a four-year life and Great Products Ltd wishes to maintain the same profit as the year 2022 with the Maxilla product going ahead.

Using the information in the table above, show the level of sales units which Fantosa must achieve in each specific year to meet the target. (5 marks)

  ii) Comment on your calculations in part c i) and advise Great Products Ltd concerning their future product developments