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: 2016 2017 $ 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 225 240 Miles driven 1,900 1,750
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: 2016 2017 $ 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 225 240 Miles driven 1,900 1,750
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What challenges might managers at SES encounter in achieving the target cost and how might they overcome these challenges?
Transcribed Image Text: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:
2016
2017
$ 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
225
240
Miles driven
1,900
1,750
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