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?

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