Pricing Data Decision Points

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The case study of the solar powerfocuses on the future of the solar power (Henderson,Conkling, &amp Roberts, 2007). Ideally,it determines how much revenue the solar power energy will earn thecompany, what price the corporation will set for the solar power,what unit direct cost they will incur to produce the solar power, andthe expected net income of the solar power energy over four decisionpoints (Falletta, 2013). Previously, I performed simulation one withdifferent module prices. In this analysis, I am performing asimulation two and then giving a decision at the end of everydecision point.

Analysis

Key Metrics

Key metrics identify theperformance of the company or product. Here, there are severalmetrics like net consumer price, module price, revenue to processimprovement and so forth.

At the first decision point, theCorporation had annual revenue of $ 626.82M, COGS of $ 472.38, grossprofit of $ 154.44M, annual process development expense of $ 26.41M,G, S&ampA of $ 67.43M, and depreciation of $ 24.75M. The businessalso had an annual net income of $ 35.85M, a net consumer price of $0.15, and a unit cost of $ 0.10 (Forio.com,2016). Thissimulation was conducted for a period of 5 years that is from 2008 to2012.

&nbsp

Sun Power (You)

Other Solar

Annual Revenue ($/Year)

$626.82M

$14.60B

COGS ($/Year)

$472.38M

$8.00B

Gross Profit ($/Year)

$154.44M

$6.60B

Annual Process Development Expense ($/Year)

$26.41M

$658.69M

GS&ampA ($/Year)

$67.43M

$1.75B

Depreciation ($/Year)

$24.75M

$541.53M

Annual Net Income ($/Year)

$35.85M

$3.65B

&nbsp

&nbsp

&nbsp

Cumulative Profit ($)

$51.84M

$11.97B

NPV of Profit ($)

$42.86M

$10.65B

&nbsp

&nbsp

&nbsp

Startup Losses ($)

-$11.01M

$0.00

Cumulative Losses ($)

-$11.01M

$0.00

&nbsp

&nbsp

&nbsp

Elapsed Time to First Profit (Yrs)

N/A

N/A

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

Consumer Net Price ($/kWh)

$0.15

$0.17

Unit Direct Cost ($/kWh)

$0.10

$0.08

&nbsp

&nbsp

&nbsp

Gross Margin (Fraction of Revenue)

0.26

0.46

Return on Sales (Fraction of Revenue)

0.07

0.26

Annual Shipments (MW/Yr)

188.59

3.85K

Capacity Utilization

1.25

1.16

The table above tells me that theenterprise has a lower market share of 4.14% as compared to that ofother solar companies of 95.86%. Its unit cost of $0.10 is higherthan that of other companies of $ 0.08, and it realizes higher annualrevenue of $626.82M and a higher annual net income of $35.85M thanthose solar corporations of $14.60M and $3.85M respectively(Forio.com,2016). This tellsme that the solar power corporation is profitable than other solarcompanies despite the cost involved.

At the second decision point, thesolar power firm had an annual revenue of $1.71B, cost of goods soldof $1.29 M, an annual gross profit of $420.35 M, an annual processdevelopment expense of $ 68.73 M, G, S&ampA of $ 173.09 M, and adepreciation expense of $ 67.66 M. the enterprise also had an annualnet income of $ 110.86 M, a consumer net price of $ 0.13, and a unitcost of $ 0.08 (Forio.com,2016). Thissimulation analysis was conducted for a period of five years that isfrom 2013 to 2017.

&nbsp

Sun Power (You)

Other Solar

Annual Revenue ($/Year)

$1.71B

$25.28B

COGS ($/Year)

$1.29B

$12.39B

Gross Profit ($/Year)

$420.35M

$12.89B

Annual Process Development Expense ($/Year)

$68.73M

$1.14B

GS&ampA ($/Year)

$173.09M

$3.02B

Depreciation ($/Year)

$67.66M

$607.73M

Annual Net Income ($/Year)

$110.86M

$8.13B

&nbsp

&nbsp

&nbsp

Cumulative Profit ($)

$134.36M

$43.99B

NPV of Profit ($)

$92.11M

$34.15B

&nbsp

&nbsp

&nbsp

Startup Losses ($)

-$11.01M

$0.00

Cumulative Losses ($)

-$89.49M

$0.00

&nbsp

&nbsp

&nbsp

Elapsed Time to First Profit (Yrs)

N/A

N/A

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

Consumer Net Price ($/kWh)

$0.13

$0.16

Unit Direct Cost ($/kWh)

$0.08

$0.07

&nbsp

&nbsp

&nbsp

Gross Margin (Fraction of Revenue)

0.26

0.51

Return on Sales (Fraction of Revenue)

0.08

0.32

Annual Shipments (MW/Yr)

608.65

6.95K

Capacity Utilization

1.25

1.25

From the comparative table ofthe solar power company and other solar power companies, it is notedthat the percentage of revenue generated by the firm that goes toprocess improvement is 5%. This amounts to $ 68.73 M of the totalrevenue (Forio.com,2016). &nbspThisis an increase from the previous decision point, implying that thecompany is not performing well despite the high annual revenue,higher gross profit, and the high annual net income. The companyshould, therefore, try to minimize its irrelevant costs.

At the third decision point, thesolar power organization had an annual net price and module price of$ 0.11 and $ 0.09 respectively (Forio.com,2016). The companyalso had a unit direct cost of $ 0.06, annual revenue of $21.53 B, anannual net income of $ 4.24B, and a cumulative profit of $5.84B,which were lower than those of other solar companies. The simulationanalysis was conducted for five years that is from 2018-2022.

&nbsp

Sun Power (You)

Other Solar

Annual Revenue ($/Year)

$21.53B

$65.48B

COGS ($/Year)

$14.43B

$33.94B

Gross Profit ($/Year)

$7.10B

$31.54B

Annual Process Development Expense ($/Year)

$639.22M

$2.59B

GS&ampA ($/Year)

$1.47B

$6.58B

Depreciation ($/Year)

$754.56M

$1.66B

Annual Net Income ($/Year)

$4.24B

$20.71B

&nbsp

&nbsp

&nbsp

Cumulative Profit ($)

$5.84B

$111.77B

NPV of Profit ($)

$3.31B

$74.69B

&nbsp

&nbsp

&nbsp

Startup Losses ($)

-$11.01M

$0.00

Cumulative Losses ($)

-$291.30M

$0.00

&nbsp

&nbsp

&nbsp

Elapsed Time to First Profit (Yrs)

N/A

N/A

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

Consumer Net Price ($/kWh)

$0.11

$0.14

Unit Direct Cost ($/kWh)

$0.06

$0.06

&nbsp

&nbsp

&nbsp

Gross Margin (Fraction of Revenue)

0.37

0.48

Return on Sales (Fraction of Revenue)

0.23

0.32

Annual Shipments (MW/Yr)

9.36K

22.57K

Capacity Utilization

1.25

1.25

From the above table, thecompany’s annual revenue and net income have been decreasing. Thishas been because of the huge and irrelevant costs that the companyincurs on process improvement and other direct costs.

Finally, simulation at decisionpoint 4 was conducted from 2023 to 2025. The solar power corporationhad a net price and a module price of $ 0.10 and $ 0.08 respectivelyas seen in Appendix 1. The company incurred a unit cost of $ 0.04 asseen in Appendix 2, realized an annual revenue of $ 128.49 B whichwas still lower than other solar companies as seen in Appendix 3, anannual net income of $ 48.96 B which was higher than that of othersolar corporations as seen in Appendix 4 and a cumulative profit of $83.04 B. Due to the favorable market conditions, the Corporationmanaged to increase its annual shipments to 62.82K from the previousdecision point (Forio.com,2016). Its capacityutilization at this decision point amounted to 1.25, which portrayeda constant trend from the previous decision points. The solar powerfirm used horizontal analysis at all decision points. Here, the firmdetermines whether there is an increase or decrease of keyperformance metrics from the previous decision points.

&nbsp

Sun Power (You)

Other Solar

Annual Revenue ($/Year)

$128.49B

$148.76B

COGS ($/Year)

$63.01B

$76.44B

Gross Profit ($/Year)

$65.49B

$72.33B

Annual Process Development Expense ($/Year)

$4.02B

$5.83B

GS&ampA ($/Year)

$9.24B

$14.50B

Depreciation ($/Year)

$3.28B

$3.75B

Annual Net Income ($/Year)

$48.96B

$48.24B

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&nbsp

&nbsp

Cumulative Profit ($)

$83.04B

$222.93B

NPV of Profit ($)

$42.31B

$131.76B

&nbsp

&nbsp

&nbsp

Startup Losses ($)

-$11.01M

$0.00

Cumulative Losses ($)

-$291.30M

$0.00

&nbsp

&nbsp

&nbsp

Elapsed Time to First Profit (Yrs)

N/A

N/A

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

Consumer Net Price ($/kWh)

$0.10

$0.12

Unit Direct Cost ($/kWh)

$0.04

$0.05

&nbsp

&nbsp

&nbsp

Gross Margin (Fraction of Revenue)

0.55

0.49

Return on Sales (Fraction of Revenue)

0.42

0.33

Annual Shipments (MW/Yr)

62.82K

58.83K

Capacity Utilization

1.25

1.25

From the cumulative table above,5% of the revenue goes to the annual process development expense.This amounts to $ 4.02 B, which is an increase from the previousprocess development cost, but it is lower than that of other solarcorporations (Forio.com,2016). The firm’sunit cost has also decreased from $ 0.06 to $ 0.04, which isfavorable for solar power.

Cause and Effect

From this analysis, the moduleprice, consumer net price, and the unit direct cost varied consumernet price resulting in a decrease in the unit direct cost (Falletta,2013). As the cost decreased, the solar power corporation was boundto make more annual revenue resulting in a rise in the annual netincome as well as the cumulative probability.

Recommendations and Conclusion

To increase their market share,the solar power firm would have set competition based pricingstrategies. Here, they would have considered the market trend and seta price lower than that of other solar companies (Falletta, 2013).This would favor the customers making them purchase from the solarpower company than from other solar firms. I would also advise thesolar power corporation to cut down on irrelevant expenditures.Lastly, from the appendixes, it is evident that the firm’s revenuewould have surpassed that of other solar companies.

Appendix

Appendix 1: Module Price ofSolar Power and other Solar

Appendix 2: Unit Direct Costof Solar Power and other Solar

Appendix 3: Net Income ofSolar Power and Other Solar

Appendix 4: Revenue of SolarPower and other Solar

References

Sterman,J. (2014). Eclipsingthe Competition: The Solar PV industry simulation.Forio. Retrieved on 17thAugustfrom&nbsphttp://forio.com/simulation/solar-test/index.htm#page=market_research/

Henderson,R., Conkling, J., &amp Roberts, S. (2007). TheSun Power Case Study.Retrieved on 17thAugust 2016 fromhttp://forio.com/simulation/solar-test/downloads/SunPower-Henderson.pdf/

Forio.com(2016). SimulationAnalysis.Retrieved on 17thAugust 2016 fromhttp://forio.com/simulation/solar-test/index.htm#page=market_research/

Falletta, S. V. (2013)Organizationaldiagnostic models: an integrative review &amp synthesis.Organizational Intelligence Institute. Retrieved on 17thAugust from http://www.oi-institute.com/

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