Reference no: EM132540306

Solar Energy Systems (SES) sells solar heating systems in residential areas of Southern Queensland. A successful sale results in the home-owner purchasing a solar heating system and obtaining rebates, tax credits and financing for which SES completes all the paper work. The company has identified three major activities that drive the cost of selling heating systems: identifying new contracts (varies with the number of new contacts); travelling to and between appointments (varies with the number of kilometres driven); and preparing and filing rebates and tax forms (varies with the number of solar systems sold).

Actual cost for each of these activities in 2016 and 2017 are:

                                                                    2016               2017

Average cost per new contact             $8.00              $7.00

Travel cost per kilometre                      0.55               0.65

Preparing and filing cost per new system   275.00         250.00

After expecting high costs in 2016, SES used value engineering to reduce the cost of selling solar heating 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:

                                                               2016                       2017

Sales of heating systems                   175                     188

Number of new contracts                       225                 240

Kilometres driven                               1900                  1750

Required:

Question 1. Calculate the cost per sale in 2016.

Question 2. Calculate the cost per sale in 2017.

Question 3. Did SES achieve the target cost per sale in 2017? Explain your answer.

Question 4. What challenges might managers at SES encounter in achieving the target cost and might they overcome these challenges?