Question

Jazzy Cola produces a lemon- lime soda. The production process starts with workers ­mixing the lemon syrup and lime flavors in a secret recipe. The company enhances the combined syrup with caffeine. Finally, the company dilutes the mixture with carbonated water. Jazzy Cola incurs the following costs (in thousands):
Delivery truck drivers’ wages............................................................................... $ 265
Lemon syrup......................................................................................................... $ 20,000
Depreciation on delivery trucks........................................................................... $ 100
Lime flavoring....................................................................................................... $ 920
Payment for new recipe....................................................................................... $ 1,190
Customer hotline.................................................................................................. $ 190
Sales commissions................................................................................................ $ 400
Production costs of “cents- off” store coupons for customers............................. $ 470
Rearranging plant layout...................................................................................... $ 1,500
Freight- in on materials......................................................................................... $ 1,700
Depreciation on plant and equipment................................................................. $ 2,900
Bottles.................................................................................................................. $ 1,210
Salt........................................................................................................................ $ 30
Plant utilities........................................................................................................ $ 850
Wages of workers who mix syrup....................................................................... $ 7,900
Plant janitors’ wages........................................................................................... $ 1,050
Replace products with expired dates upon customer complaint....................... $ 60

Requirements
1. Classify each of the listed costs according to its category in the value chain, (R& D, ­Design, Production, Marketing, Distribution, or Customer Service).
2. Further break down production costs into three subcategories: Direct Materials (DM), Direct Labor (DL), or Manufacturing Overhead (MOH).
3. Compute the total costs for each value chain category.
4. How much are the total inventoriable product costs?
5. 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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  • CreatedAugust 27, 2014
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