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.

2

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:

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.

Determine which one of the alternatives Mr. David Thapa should select to achieve the company's annual after-tax profit objective.

made Executive Report to advise the CEO on the results of the analysis. While preparing the report please take the following into consideration:

The after-tax profit across the three different alternatives, explaining the reason for difference.

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.

The use of your new analysis in managing Green Captain's profitability for the year.

Answer rating: 100% (QA)

a To break even To calculate the breakeven point we need to determine the contribution margin per unit The contribution margin per unit is calculated as the selling price per unit minus the variable c... View the full answer