Question

Rootstown 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. Rootstown Cola incurs the following costs (in thousands):
Plant janitors’ wages........................................................................................ $ 950
Delivery truck drivers’ wages........................................................................... $ 285
Payment for new recipe................................................................................... $ 1,090
Depreciation on delivery trucks....................................................................... $ 300
Plant utilities..................................................................................................... $ 850
Lime flavoring................................................................................................... $ 1,080
Rearranging plant layout.................................................................................. $ 1,300
Bottles.............................................................................................................. $ 1,390 Salt.................................................................................................................... $ 30
Sales commissions............................................................................................ $ 400
Production costs of “cents- off” store coupons for customers......................... $ 670
Lemon syrup..................................................................................................... $ 17,000
Replace products with expired dates upon customer complaint.................... $ 35
Depreciation on plant and equipment............................................................. $ 3,200
Wages of workers who mix syrup.................................................................... $ 8,200
Customer hotline.............................................................................................. $ 200
Freight- in on materials..................................................................................... $ 1,600

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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