Concept explainers
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 | |
Average cost per new contact | $ 8.00 | $ 7.00 |
Travel cost per mile | 0.55 | 0.65 |
Preparing and filing cost per new system | 275.00 | 250.00 |
After experiencing 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:
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 |
- 1. Calculate the cost per sale in 2016.
Required
- 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?
Want to see the full answer?
Check out a sample textbook solutionChapter 13 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
- Value chain and classification of costs, computer company. Dell Computer incurs the following costs:a. Utility costs for the plant assembling the Latitude computer line of productsb. Distribution costs for shipping the Latitude line of products to a retail chainc. Payment to David Newbury Designs for design of the XPS 2-in-1 laptopd. Salary of computer scientist working on the next generation of serverse. Cost of Dell employees’ visit to a major customer to demonstrate Dell’s ability to interconnect withother computersf. Purchase of competitors’ products for testing against potential Dell productsg. Payment to business magazine for running Dell advertisementsh. Cost of cartridges purchased from outside supplier to be used with Dell printersarrow_forwardAlameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation, which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost characteristics.arrow_forwardClassifying Costs as Product or Period Costs Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 1. Depreciation on salespersons’ cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors’ salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9.…arrow_forward
- Pocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized umbrella would fit into a coat pocket or purse. Classify the following costs of this new product as direct materials, direct labor, manufacturing overhead, or selling and administrative. Cost of advertising the product Fabric used to make the umbrellas Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame Wages of workers who assemble the product Presidents salary The salary of the supervisor of the people who assemble the product Wages of the product tester who stands in a shower to make sure the umbrellas do not leak Cost of market research survey Salary of the companys sales managers Depreciation of administrative office buildingarrow_forwardAlameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation, which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost characteristics. Need Assistance with Req C2, Req C3, Req C4arrow_forwardQueen's Move plc specializes in household removals and storage services. The business runs its own fleet of removal vehicles and also has freehold premises used for storage in many major towns and citios. The directors are undertaking an exercise to identify the principal cost pools and drivers in both aspects of the business with a view to implementing ABC on a two-year trial basis Which option below is the correct one for an activity pool? O booking of a removal by a customer O Premises costs (for housing the fleet of vehicles) O occupation of space by goods stored O number of milos drivenarrow_forward
- 1) Toni and her brothers own Deck & Grounds, Inc., which offers a wide range of home and landscape improvement products and services. Toni is using cost-volume analysis to help decide whether or not the company should add hot tubs to its product line. Initial cost estimate summaries are: Truck modifications and new hot tub handling and display equipment. Employee training and required certifications and licenses. Facilities modifications required at Deck & Grounds to create a hot tub display area. Deck & Grounds' average cost for a hot tub* Materials costs for a basic họt tub installation. Labor costs for a basic hot tub installation. $20,000 $ 6,400 $ 1,600 $ 2,100 $ 800 $ 1,000 *Toni will adjust the customer's price up or down by a multiple to reflect variation in tub cost. If Toni plans to charge [an average price of $5,000] for a basic hot tub installation, what will be the break-even volume? a. Suppose Toni wants to break even with 18 installations, what average price must she…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 353,875 372,500 items Delivering order Number of orders 1,190,000 35,000 orders Handling complaints Number of complaints 40,500 150 complaints Total delivery cost $ 1,584,375 The intern selected two customers, who were frequent customers,…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 330,750 367,500 items Delivering order Number of orders 942,500 32,500 orders Handling complaints Number of complaints 32,500 125 complaints Total delivery cost $ 1,305,750 The intern selected two customers, who were frequent customers,…arrow_forward
- Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 353,875 1,190,000 40,500 $ 1,584,375 Total order value (before delivery charge) Number of orders Total number of items Number of delivery complaints The intern selected two customers,…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 308,125 720,000 40,000 Annual Driver Volume 362,500 items 30,000 orders 160 complaints $ 1,068,125 The intern selected two customers, who were frequent customers, to use as an…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 286,000 522,500 32,400 $ 840,900 Total order value (before delivery charge) Number of orders The intern selected two customers, who were frequent customers, to use as an illustration of…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College