Target costs, effect of process-design changes on service costs. Solar Energy Systems (SES) sells solar heating systems in residential areas of eastern Pennsylvania. A successful sale results in the homeowner purchasing a solar heating system and obtaining rebates, tax credits, and financing for which SES completes all the paperwork. The company has identified three major activities that drive the cost of selling heating systems: identifying new contacts (varies with the number of new contacts); traveling to and between appointments (varies with the number of miles driven); and preparing and filing rebates and tax forms (varies with the number of solar systems sold). Actual costs for each of these activities in 2016 and 2017 are: 20172016$ 8.00$ 7.00Average cost per new contactTravel cost per milePreparing and filing cost per new system0.550.65275.00250.00After experiencing high costs in 2016, SES used value engineering to reduce the cost of selling solar heat-ing systems. Managers at SES want to evaluate whether value engineering has succeeded in reducing theselling cost per sale by the targeted 8% in 2017.Actual results for 2016 and 2017 for SES are:Actual Results for 2016Actual Results for 2017Sales of heating systems175188Number of new contacts240225Miles driven1,9001,7501. Calculate the cost per sale in 2016.2. Calculate the cost per sale in 2017.3. Did SES achieve the target cost per sale in 2017? Explain.4. What challenges might managers at SES encounter in achieving the target cost and how might theyovercome these challenges?Required

The cost per sale can be computed by dividing the total cost incurred by the numer of units sold.

Answered: 2017 2016 $ 8.00 $ 7.00 Average cost…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Target costs, effect of process-design changes on service costs. Solar Energy Systems (SES) sells solar heating systems in residential areas of eastern Pennsylvania. A successful sale results in the homeowner purchasing a solar heating system and obtaining rebates, tax credits, and financing for which SES completes all the paperwork. The company has identified three major activities that drive the cost of selling heating systems: identifying new contacts (varies with the number of new contacts); traveling to and between appointments (varies with the number of miles driven); and preparing and filing rebates and tax forms (varies with the number of solar systems sold). Actual costs for each of these activities in 2016 and 2017 are:

2017
2016
$ 8.00
$ 7.00
Average cost per new contact
Travel cost per mile
Preparing and filing cost per new system
0.55
0.65
275.00
250.00
After experiencing high costs in 2016, SES used value engineering to reduce the cost of selling solar heat-
ing systems. Managers at SES want to evaluate whether value engineering has succeeded in reducing the
selling cost per sale by the targeted 8% in 2017.
Actual results for 2016 and 2017 for SES are:
Actual Results for 2016
Actual Results for 2017
Sales of heating systems
175
188
Number of new contacts
240
225
Miles driven
1,900
1,750
1. Calculate the cost per sale in 2016.
2. Calculate the cost per sale in 2017.
3. Did SES achieve the target cost per sale in 2017? Explain.
4. What challenges might managers at SES encounter in achieving the target cost and how might they
overcome these challenges?
Required

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