The following comments were broadcast on a television news programme in the first week of February 1999: Rover’s future depends on the success of their latest model, codename R75. They intend to attract buyers away from Audi and Volvo to what they describe as the best car they have ever built. They claim to have paid more attention to detail than ever before on this upmarket saloon car. This may be why the launch has been put back from autumn 1998 to the summer of 1999. Selling prices will be a crucial element in their battle for market share and are expected to range from £18,000 to £26,000. Rover say they need to sell 140,000 cars a year to break even and acknowledge that this is a significant challenge. However, this is one test they cannot afford to fail. It is no coincidence that the R75 has been nicknamed ‘the last chance saloon’!

Investigation
Assume:
The retail selling price is £22,000 (average of £18,000 and £26,000).
The trade selling price is 75% of the retail price.
The total cost is 80% of the trade selling price.
The variable cost is X% of the total cost.

Tasks:
1. Calculate the total fixed costs for the R75 project if X is
a) 50%
b) 65%
c) 80%.
As well as an annual total, express your answers in £/day.
2. Assuming the variable cost is 65% of total cost, how many R75s need to be sold for profit to be £100 million?
3. If 200,000 R75s were sold in the year, assuming the variable cost is 65% of total cost, how much profit would they make?
4. If the total capital employed on the R75 project is £10,000 million and Rover’s owners wanted a 20% return on capital employed (ROCE), how many cars would have to be sold?