Target costs, effect of process-design changes on service costs. Sun Systems provide...

Target costs, effect of process-design changes on service costs. Sun Systems provides energy audits in residential areas of southern Ohio. The energy audits provide information to homeowners on the benefits of solar energy. A consultant from Sun Systems educates the homeowner about federal and state rebates and tax credits available for purchases and installations of solar heating systems. A successful energy audit results in the homeowner purchasing a solar heating system. Sun Systems does not install the solar heating system, but arranges for the installation with a local company. Sun Systems completes all necessary paperwork related to the rebates, tax credits, and financing. The company has identified three major activities that drive the cost of energy audits: identifying new contacts (that varies with the number of new contacts); traveling to and between appointments (that varies with the number of miles driven); and preparing and filing rebates and tax forms (that varies with the number of clerical hours). Actual costs for each of these activities in 2012 and 2013 are:

In 2013, Sun Systems used value engineering to reduce the cost of the energy audits. Managers at Sun

Systems want to evaluate whether value engineering has succeeded in reducing the target cost per audit

by 5%.

Actual results for 2012 and 2013 for Sun Systems are:

1. Calculate the cost per audit in 2012.

2. Calculate the cost per audit in 2013.

3. Did Sun Systems achieve the target cost per audit in 2013? Explain.

4. What challenges might managers at Sun Systems encounter in achieving the target cost and how might they overcome these challenges?