Some companies that manufacture multiple products perform a comprehensive assessment of individual product profitability by collecting the costs incurred for each of the major business functions in the value chain and comparing them to the revenues generated by each of their major product offerings. For example, a manufacturer of home electronics equipment employing this type of analysis would separately track the research and development, product design, manufacturing, marketing, distribution, and customer service costs for each of its major product lines, such as televisions, home theatre systems, and speakers. Revenues for each of these product lines would also be separately identified, allowing managers to calculate profitability on a product-by-product basis.
Required:
1. Identify some benefits and challenges of performing the type of value chain analysis described above in a company that has multiple product lines.
2. What might cause some of the costs for the specific functions making up the value chain to increase or decrease over the life of a product (i.e., from the early to mature stages of a product’s life)?