1 Sola Systems Sola Systems, a company focussed on clean, energy products assembles and sells two types of solar panels, Panel A and Panel B. The company’s sales occur in two regions – One is called Northern and incorporates Queensland, New South Wales and the Northern Territory. The other is called Southern and incorporates Victoria, Tasmania, South Australia, and Western Australia. Sola Systems has used a cost and performance measurement system based on monthly profit reports for each product and for each region as described below. These two reports are analysed and decisions are made based on the information contained in them. The first report is a product profitability statement which is prepared showing sales by panel less costs per panel giving a gross profit per panel. Factory overheads are allocated to panels on the basis of direct labour hours. Period expenses are classified using the sub headings shown in Exhibit 1. These expenses are deducted from gross profit on the basis of the total sales dollars per panel to give net profit per panel. Finally, additional information is calculated in the form of both gross and net profit rates for each panel. A second profit report calculates the profitability for each region (Northern and Southern). To produce this report, Sola Systems calculates the sales of both panels less production costs that each region incurs to determine the gross profit per region and then the period expenses are classified as shown in Exhibit 1 and then allocated to each region on the basis of total sales dollars per region to give net profit per region. Finally, additional information is calculated in the form of both gross and net profit rates for each region. Eva Green, the chief executive officer of Sola Systems has been very concerned at the performance of Sola Systems because the reporting system consistently shows that solar Panel A has a gross profit rate of 69% compared to solar Panel B of 60%. As a consequence, of this information…