Performance Management for Hydrogen Car Project - Essay Example

In order for H.C.P to achieve a 15% annual minimum return on capital employed the need to attain gross profit of £450 million. The maximum production capacity is 90,000 cars per year. Assuming H.C.P reaches the maximum production level, they will have to sell each car at £15,666 to attain a 15% minimum return on capital employed but according to the demand and supply curve that volume of sales can only be attained when the price per is £9,000 which is below production cost. This leaves H.C.P in a paradox. Looking at the competitor's price range the minimum and maximum price per car is £10,400 and £11600 respectively. Using these parameters we can determine what are optimal production, sales volume, and selling price.

How H.C.P can Attain 15% minimum return on capital employed:

We know it’s difficult to attain a maximum production capacity of 90,000 per annum; therefore we need to set up optimal production capacity based on percentage. Based on prevailing circumstances we let 80% of maximum production be the optimal production capacity that is 72,000 cars per annum. Looking at our demand curve the selling price per car should be £9,600.

           10,800.00

           11,000.00

                53,720

                44,880

  580,176,000.00

  493,680,000.00

       121,729,520

       101,698,080

    21,488,000.00

    17,952,000.00

       143,217,520

       119,650,080

         17,942,480

         14,989,920

         53,720,000

         44,880,000

       214,880,000

       179,520,000

       572,977,520

       478,690,080

      7,198,480.00

    14,989,920.00

  300,000,000.00

  300,000,000.00

  300,000,000.00

  300,000,000.00