EnergySaver is a new innovative manufacturer of cutting-edge solar panels. A significant portion of the company's success is due to technologically superior product design. The company has invented a flexible photovoltaic panel that utilizes solar energy much more efficiently than traditional panels. Due to its flexible properties the company's panels are also very resistant to weathering and the normal wear and tear associated with traditional panels. This has made EnergySaver panels especially popular among certain green-minded companies and individual consumers. The company management team is made up of a number of high profile executives who have extensive experience in the energy industry. Many equity investors and analysts believe the firm is poised to experience exponential growth in the coming years because of the growing popularity of environmentally friendly products and green engineering. However, a number of key industry experts warn that the market for the company's new technology is much riskier than many believe. They point out that the market is always risky for high-tech start-ups, especially those with new and unproven technology.

The regular price for EnergySaver's main product, the E-Flex 1000 panel, is $600. The company expects to sell 380,000 units in the coming year, and sales are expected to increase during the following years. Right now the company produces its E-Flex 1000 panel at a small factory it recently purchased and uses some equipment it purchased from a leading industry manufacturer. The rest of the equipment is on lease. Currently, EnergySaver manufactures about 62% of the parts in its photovoltaic panels.

EnergySaver's management team has decided that it must reconfigure its manufacturing process in order to remain competitive. The team decides to implement a plan to increase the number of purchased parts (to about 82%) and reduce the complexity of the manufacturing process. This would allow the company to remove the leased equipment and raise some cash by selling some of the purchased equipment currently used in the plant.

The per-unit manufacturing cost for 380,000 units of Flex 1000 follows:

	Current manufacturing cost	Proposed manufacturing cost
Materials and purchased parts	$ 180	$ 195
Direct labour	$ 55	$ 62.5
Variable overhead	$ 70	$ 80
Fixed overhead	$ 90	$ 55

General, selling, and administrative variable costs are $25 per unit, and total fixed costs are $2,050,000; these costs are not expected to differ for either the current or the proposed manufacturing plan.

Required

1. Compute the contribution margin per unit and the breakeven point in units for the E- Flex 1000 panel, both before and after the proposed reengineering project.

2. Determine the number of sales units at which EnergySaver would be indifferent between the current manufacturing plan and the proposed plan.

3. Explain briefly (a) EnergySaver's strategy and (b) if EnergySaver should undertake the proposed reengineering plan. Support your answer with a sensitivity analysis and a discussion of both short-term and long-term considerations. Your sensitivity analysis should show the amount of projected operating income under each plan as volume goes from 0 units to 900,000 units per year, in increments of 100,000 units.

4. Calculate and interpret the degree of operating leverage (DOL) for each decision alternative at Q = 400,000 units and at Q = 600,000 units.

EnergySaver is a new innovative manufacturer of cutting-edge solar panels. A significant portion of the company's success is due to technologically superior product design. The company has invented a flexible photovoltaic panel that utilizes solar energy much more efficiently than traditional panels. Due to its flexible properties the company's panels are also very resistant to weathering and the normal wear and tear associated with traditional panels. This has made EnergySaver panels especially popular among certain green-minded companies and individual consumers. The company management team is made up of a number of high profile executives who have extensive experience in the energy industry. Many equity investors and analysts believe the firm is poised to experience exponential growth in the coming years because of the growing popularity of environmentally friendly products and green engineering. However, a number of key industry experts warn that the market for the company's new technology is much riskier than many believe. They point out that the market is always risky for high-tech start-ups, especially those with new and unproven technology. The regular price for Energy Saver's main product, the E-Flex 1000 panel, is $600. The company expects to sell 380,000 units in the coming year, and sales are expected to increase during the following years. Right now the company produces its E-Flex 1000 panel at a small factory it recently purchased and uses some equipment it purchased from a leading industry manufacturer. The rest of the equipment is on lease. Currently, EnergySaver manufactures about 62% of the parts in its photovoltaic panels. EnergySaver's management team has decided that it must reconfigure its manufacturing process in order to remain competitive. The team decides to implement a plan to increase the number of purchased parts (to about 82%) and reduce the complexity of the manufacturing process. This would allow the company to remove the leased equipment and raise some cash by selling some of the purchased equipment currently used in the plant. The per-unit manufacturing cost for 380,000 units of Flex 1000 follows: Materials and purchased parts Direct labour Variable overhead Fixed overhead Current manufacturing cost $ 180 $ 55 $ 70 $ 90 Proposed manufacturing cost $ 195 $ 62.5 $ 80 $ 55 General, selling, and administrative variable costs are $25 per unit, and total fixed costs are $2,050,000; these costs are not expected to differ for either the current or the proposed manufacturing plan. Required 1. Compute the contribution margin per unit and the breakeven point in units for the E- Flex 1000 panel, both before and after the proposed reengineering project. 2. Determine the number of sales units at which EnergySaver would be indifferent between the current manufacturing plan and the proposed plan. 3. Explain briefly (a) Energy Saver's strategy and (b) if Energy Saver should undertake the proposed reengineering plan. Support your answer with a sensitivity analysis and a discussion of both short-term and long term considerations. Your sensitivity analysis should show the amount of projected operating income under each plan as volume goes from 0 units to 900,000 units per year, in increments of 100,000 units. 4. Calculate and interpret the degree of operating leverage (DOL) for each decision alternative at Q = 400,000 units and at Q = 600,000 units