Valery Plc is a company which manufactures electric cars. The company is very successful but has not designed any new car for the last 2 years but has continually updated their current range of cars. The Research & Development department have been working on the possibility of manufacturing a solar powered car for the last five years and have now decided that, due to the success of the business, it is time to invest money into designing a solar powered car. The process of design, development and building a prototype will cost 10 million pounds. The product will take one year to design and develop and it will have a maximum life of two years before competitors launch their own version of the car. At this stage, the car will need to be redesigned or withdrawn from the market. The Senior Management team have agreed to consider this proposal and have asked the Management Accountant to draw up a schedule of costs for the new car. They have also asked the Marketing team to undertake market research to establish the estimated demand and selling price for the car. The Management Accountant has drawn up a schedule of costs below: Year 1 Year 2 Year 3 Research and development costs 2,150,000 Product design costs 5,800,000 Prototype costs 2,050,000 Marketing costs 2,100,000 1,000,000 900,000 (year 1,2,3) Manufacturing costs(all year 2,3): Variable cost per unit 1600 1600 Fixed production costs 8,350,000 8,490,000 Distribution costs: Variable cost per unit 500 500 Fixed distribution costs 1,110,000 1,120,000 Selling costs: Variable cost per unit 600 600 Fixed selling costs 1,200,000 1,200,000 Administration costs(year 1,2,3) 800,000 800,000 900,000 The Marketing team have established that the demand for the car in Year 1 will be 100,000 cars and in Year 2 it will be 110,000 cars. The market selling price for the car is 8,000 and the company requires a target return of 65%. Required:

(a) Identify two reasons why Valery Plc should use Life Cycle Costing to cost the solar powered car.

(b) Calculate the lifecycle cost per unit for the solar powered car. Present your numbers in 000s. Round the final answer to the nearest whole unit.

(f) Suggest 5 strategies for closing the cost gap. [5 marks]