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 €œcents-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?

Transcribed Image Text:

Production Design of Products or Direct Direct Manufacturing Customer R&D Processes Materials Labour Overhead Marketing Distribution Service