Executive Report

Green Captain PLC

Executive Summary
• Key objective of this presentation is to appraise alternative options available for Green Captain Solar
Manufacturers to achieve its pre-set after tax profit objective.

• With the low volume of sales during the first five months of 2023, it is assumable that the company would
fail to reach its profitability projection.

• This report is an attempt made on gaining insights about the methods available for the company to get its
issue resolved.

• As per the analysis, it is recommended that the sales price reduction by $100 when the cost structure remain
constant is the only option available for the company that assures the target profitability achievement.
Analysis
• The basic purpose of calculating the break-even point is the identification of the minimum production
quantity that is required by an organization to cover up its fixed and variable costs (Kampf, Majerčák, &
Švagr, 2016).
• The understanding gained through break-even analysis would enable the firm to anticipate the revenue
requirement in terms of gaining profits (Gutierrez & Dalsted, 2012).
• Break-even point implies the minimum revenue requirement to get the total cost covered up. According to the
analysis, at the sales quantity of 500, the company records neither a profit nor loss.
• Appropriately, at the sales volume of 3,000, the company can earn the predicted after-tax profit of $600,000,
without making any changes to the sales price or cost structure.
a. $ b.
Total Sales 420,000 After Tax Profit 600,000
Total Variable Cost - 210,000 Pre- Tax Profit 750,000
Contribution 210,000 Fixed Cost 150,000
No of Units Sold 700 Total Contribution Required 900,000
Contribution Margin Per Unit 300.00 Contribution Per Unit 300
Required Sales 3,000
Fixed Cost 150,000
Break Even Point (in Units) 500
Analysis Alternative 1

Selling Price Per Unit 500

As alternative 1 is considered, the per unit sales price Variable Cost Per Unit - 300
Contribution Per Unit 200
would get reduced by $100. All the costs would be
kept the same. Appropriately, earning a profitability of
After Tax Profit 600,000
$600,000 is possible at the sales volume of 4,154. As Pre- Tax Profit 750,000
per the predictions, the company can approach a sales Fixed Cost 150,000

level of 4,200 with this implementation. Hence, the

option is viable. Total Sales 2,170,000
Total Variable Costs - 1,260,000
Contribution 910,000

Targeted Profit 750,000

Fixed Cost 150,000
Contribution Margin Per Unit 216.67
Required Sales (Approximately) 4,154

Total Sales as per Predictions 4,200

Analysis Alternative 2

Selling Price Per Unit 510

As alternative 2 is considered, the per unit sales price Variable Cost Per Unit - 275
Contribution Per Unit 235
would get reduced by $90. Also, the variable cost is to
be reduced by $25 by switching to purchase low
After Tax Profit 600,000
quality material and utilizing highly efficient Pre- Tax Profit 750,000
Fixed Cost 150,000
production technologies. Appropriately, earning a
profitability of $600,000 is possible at the sales
Total Sales 1,848,000
volume of 3,629. But, as per the predictions, the Total Variable Costs - 980,000
Contribution 868,000
company can only approach a sales level of 3,500 with
the considerations which are not sufficient to reach out Targeted Profit 750,000
Fixed Cost 150,000
the required profitability volume. Contribution Margin Per Unit 248.00
Required Sales (Approximately) 3,629

Total Sales as per Predictions 3,500

Analysis Alternative 3

Selling Price Per Unit 540

As alternative 3 is considered, the per unit sales price Variable Cost Per Unit - 300
Contribution Per Unit 240
is to get reduced by 10% (new selling price would be

$540). Further, the fixed cost is to be reduced by After Tax Profit 600,000
Pre- Tax Profit 750,000
$30,000. Consequently, the company can earn the
Fixed Cost 120,000
predicted after-tax profitability pf $600,000 is possible

at the sales volume of 3,437. As per the predictions, Total Sales 1,770,000
Total Variable Costs - 960,000
the company can only approach a sales level of 3,200 Contribution 810,000

with these implementation which is not sufficient to Targeted Profit 750,000

Fixed Cost 120,000
reach out the required profit margin.
Contribution Margin Per Unit 253.13
Required Sales (Approximately) 3,437

Total Sales as per Predictions 3,200

Key Findings
• Over the course of the financial period, the company should at least sell 500 solar panels to break-even. Any
sales that exceeds the BEP level would yield profits for the organization.

• Unlikely in any case, the significant sales price reduction would cause the highest demand surge. Hence, a
well conceived price cut would impact the corporate profitability in a positive manner (LaMarco, 2019).

• The company may be obliged to drop the quality of the products being offered as a means of cost saving.
However, an external force may influence it to reduce the price of the products to keep up the identical level
of sales. Any possible gains could get eliminated by this approach, leaving the company a net loss.

• Increased production due to high demand may generate high profits not merely because of sale price
reductions but as the company would be gaining economies of scale. When total fixed cost remains constant
and getting allocated among a high number of products, eventually per unit cost would get decreased
ensuring a high profitability for the organization (European Commission, 1997).

•
Key Findings
• Neither of the options, apart from option 1 is generating the desired profitability for the company. Hence, the
only viable option is sales price reduction by $100.

• In case if the raw material quality would get reduced as a decision is made to switch the suppliers, the brand
image and product perception might get harmed due to low quality outcomes. That may ultimately cause a
high, unanticipated demand drop.

• As the contribution margin yielded on a single unit is declined, the required sales volume to yearn the desired
profitability gets decreased. Also, as fixed cost decreases, earning the target profit margin becomes more
convenient.

• Both sales price reduction and cost cutting affects profitability increment. The significance and intensity of
the impact would vary according to the product type and industrial sector that the particular company
operates in (LaMarco, 2019). In this case, reduction of the sales price when the cost structure remains
consistent is the only viable option.
Recommendations
• Cutting costs may seem straightforward, but that needs to be done in a strategical manner to attract more
consumers for the business (Allcot, 2021).

• Based on the competitor pricing strategies and the life cycle stage that the product passes through, the price
reduction must be made tactically (Allcot, 2021).

• It must be assured on consumers that they get the similar or superior value at a low price than before. It is
better than making the products inferior to the competition.

• Instead of switching to low quality material, the company can implement bulk purchases decisions to
purchase raw material at discounted prices. It is the managerial duty to look at possibilities to cut down costs
without quality suffering (Stirling, 2022).
References
Allcot, D., 2021. How to Strategically Lower Prices. [Online]
Available at: https://www.uschamber.com/co/start/strategy/strategically-lower-prices-small-business
[Accessed 2 May 2023].

European Commission, 1997. IMPACT ON COMPETITION AND SCALE EFFECTS : ECONOMIES OF SCALE,
London: Kogan Page . Earthscan .

Gutierrez, P. H. & Dalsted, N. L., 2012. Break-Even Method of Investment Analysis, Colorado: Colorado State
University.

Kampf, R., Majerčák, P. & Švagr, P., 2016. Application of Break-Even Point Analysis. Naše more, 63(3), pp. 126-
128.

LaMarco, N., 2019. Is Cutting Prices a Good Marketing Strategy?. [Online]

Available at: https://smallbusiness.chron.com/cutting-prices-good-marketing-strategy-61446.html
[Accessed 2 May 2023].

Stirling, S., 2022. How to cut costs without affecting the quality of your product or service. [Online]
Available at: https://www.capitalspace.co.uk/Information/Latest-News/22718-/How-to-cut-costs-without-affecting-
the-quality-of-your-product-or-service
[Accessed 2 May 2023].