Question

Best Value Cola produces a lemon-lime soda. The production process starts with workers mixing the lemon syrup and lime flavours in a secret recipe. The company enhances the combined syrup with caffeine. Finally, Best Value dilutes the mixture with carbonated water.
Best Value Cola incurs the following costs (in thousands):
Plant utilities........................................................................................... $ 750
Depreciation on plant and equipment ..................................................... 2,800
Payment for new recipe........................................................................... 1,040
Salt.......................................................................................................... 25
Replace products with expired dates upon customer complaint .............. 45
Rearranging plant layout......................................................................... 1,400
Lemon syrup........................................................................................... 17,000
Lime flavoring......................................................................................... 1,120
Production costs of “cents-off” store coupons for customers .................. 470
Delivery truck drivers’ wages .................................................................. 285
Bottles..................................................................................................... 1,310
Sales commissions................................................................................... 400
Plant janitors’ wages ............................................................................... 1,050
Wages of workers who mix syrup........................................................... 8,000
Customer hotline..................................................................................... 190
Depreciation on delivery trucks............................................................... 200
Freight-in on materials............................................................................ 1,300
Total....................................................................................................... $37,385
Requirements
1. Classify each of these costs according to its place in the value chain.
2. Compute the total costs for each value-chain category.
3. How much are the total inventoriable product costs?
4. Suppose the managers of the R&D and design functions receive year-end bonuses based on meeting their unit’s target cost reductions. What are they likely to do? How might this affect costs incurred in other elements of the value chain?


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  • CreatedApril 30, 2015
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