4. Proposed introduction of maintenance contracts REnew's CEO, Mr Dimm, believes that the recent changes in the PVRSS sector have created an opportunity for REnew to offer maintenance contracts to customers who purchase their PV solar panels. Furthermore, REnew could then also offer maintenance contracts for PV solar panels manufactured by other companies within the sector that are now supplying all components needed for PVRSSs (due to them not having the ability or capacity to provide maintenance services). REnew's PV solar panels already carry a standard 12 -month warranty whereby REnew already replaces / repairs any defects (subject to the PV solar panels being operated in accordance with its design specifications). However, this does not cover any work required because of normal wear and tear (i.e., maintenance). REnew's proposed maintenance contract would cover: - Routine three-monthly inspections of customer's PV solar panels by REnew's technicians (included in the monthly price of the maintenance contract), - Replacement of parts as a result of normal wear and tear (at the customer's expense), - Replacement of defective parts not as a result of normal wear and tear (included in the monthly price of the maintenance contract), and - General repair work required (at the customer's expense). Also included in the monthly price of the maintenance contract would be a guarantee that REnew's service technicians will repair any problematic PV solar panels within eight hours of a breakdown being reported. It is expected that proactive and regular maintenance of PV solar panels would be of great benefit to customers and that this is likely to improve the operating performance of REnew's panels and extend their useful lives. In an effort to show the viability of introducing maintenance contracts to REnew's other executive directors, Mr Dimm prepared the following draft budget for FY2025 included below. Notes to draft budget prepared by Mr Dimm: (i) There are currently about 450000 PV solar panels in use all over South Africa that were manufactured and sold by REnew over the years. Based on market research, Mr Dimm's opinion is that REnew would be able to charge a monthly fee of R95 per PV solar panel in terms of the maintenance contract. Maintenance revenue assumes that the owners of all REnew's 450000PV solar panels in use would enter into a maintenance contract. (ii) This is the gross profit earned on the sale of parts to replace those that are worn because of normal wear and tear. (iii) Direct labour relates to the cost of: - 150 REnew technicians and 150 assistants who would be paid by REnew for each inspection that they perform. - 5 supervisors who are paid a fixed monthly salary. These are staff members that are currently employed by REnew. These staff members would have to undergo technical training to qualify them to perform this supervisory role. The cost of this training is not reflected in the budget. Technicians and assistants would be based at REnew's current premises in Krugersdorp, in Gauteng. (iv) This relates to existing motor vehicles that are used by REnew to deliver completed solar panels to PVRSS suppliers. These would be used by the technicians to perform the maintenance services. (v) This includes the expected cost of accommodation, meals and fuel for the technicians and assistants to travel to customers' premises. Critically comment on the draft budget prepared by Mr Dimm for the proposed introduction of maintenance contracts (in section 4 of the scenario). To do this you should identify and explain: i. Errors and omissions in the draft budget from a relevant costing and value maximisation perspective; and ii. Other key factors and risks that should be considered in deciding whether to start offering maintenance contracts