5. Great Products Ltd has a range of products which are in regular demand but needs...
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5. 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 2023 £M 380 190 2024 £M 360 180 2025 £M 300 150 2022 2026 £M 250 125 2027 £M 200 100 100 4 £M 400 Sales Cost of sales Contribution Marketing Fixed expenses Net Income 200 200 8 80 190 9 180 8 60 112 150 125 70 111 60 60 112 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 Eantosa £20M Allocated R &D £70 Million Estimated sales price per unit 2022 2023 2024 2025 2026 2027 £80 £65 £55 £40 £60 £50 £50 £45 £30 per unit 2% of sales value £15 per unit 2% of sales value Estimated variable costs Marketing Estimated unit sales 2022 2023 2024 2025 800,000 units 1,200,000 units 600,000 units 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) bi) 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). (3 marks) c) 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 Eantosa must achieve in each specific year to meet the target. (5 marks) ii) Comment on your calculations in part ci) and advise Great Products Ltd concerning their future product developments. (3 marks) 5. 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 2023 £M 380 190 2024 £M 360 180 2025 £M 300 150 2022 2026 £M 250 125 2027 £M 200 100 100 4 £M 400 Sales Cost of sales Contribution Marketing Fixed expenses Net Income 200 200 8 80 190 9 180 8 60 112 150 125 70 111 60 60 112 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 Eantosa £20M Allocated R &D £70 Million Estimated sales price per unit 2022 2023 2024 2025 2026 2027 £80 £65 £55 £40 £60 £50 £50 £45 £30 per unit 2% of sales value £15 per unit 2% of sales value Estimated variable costs Marketing Estimated unit sales 2022 2023 2024 2025 800,000 units 1,200,000 units 600,000 units 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) bi) 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). (3 marks) c) 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 Eantosa must achieve in each specific year to meet the target. (5 marks) ii) Comment on your calculations in part ci) and advise Great Products Ltd concerning their future product developments. (3 marks)
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A Life cycle costing aims to cost a product over its entire life cycle with the aim of maximizing th... View the full answer
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