Green Captain Solar manufactures and sells solar panels that can be added on to
existing solar panel systems on individual homes and businesses. The market covers
both new panels as well as recycled panels. For the year 2023 Green captain
predicted the following:
selling price of $600 per panel
variable cost $300
fixed annual cost at $150,000
after tax profit $600,000
tax rate 20%
The financial statements of Green Captain prepared in May 2023 indicated that the
sales targets were not being met. For the first five months of 2023, only 700 panels
had been sold at the established price, with variable costs as planned. It was clear
the 2023 after-tax profit projection would not be reached unless some actions were
taken. The CEO of Green Captain, Mr. David Thapa assigned a management
accountant to undertake an analysis of the situation and come up with several
alternative courses of action. The management accountant presented the following
alternatives to the CEO.
Bring down the sales price by $100. The sales department predicts that with
this reduction, 3,500 panels can be sold during the remainder of the year.
Total fixed and variable unit costs will remain the same.
Bring down the variable cost per panel by $25 by sourcing lower quality raw
materials and modifying manufacturing techniques. In addition, bring down
the sales price by $90, with a sales of 2,800 panels predicted for the
remainder of the 2023.
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Bring down fixed costs by $30,000 and sales price by 10 percent. Variable
costs per panel will remain the same, with a sale of 2,500 panels predicted
for the remainder of the year.
Required:
1. Assuming that there are no changes made to the selling price or the structure
of costs, determine how many solar panels Green Captain must sell:
a) To break even.
b) To achieve its after-tax profit objective.
2. Determine which one of the alternatives Mr. David Thapa should select to
achieve the companys annual after-tax profit objective.
Prepare an Executive Report to advise the CEO on the results of the analysis. While
preparing the report please take the following into consideration:
1. The after-tax profit across the three different alternatives, explaining the
reason for difference.
2. The impact on the quality of the solar panels due to the change in the quality
of raw materials and the manufacturing techniques. The benefits and the
drawbacks in undertaking this change. How should the management
accountant advise the CEO in this regard.
3. The use of your new analysis in managing Green Captains profitability for the