Buzz Cola produces a lemon-lime soda. The production process starts with workers mixing the lemon syrup and lime fl avors in a secret recipe. The company enhances the combined syrup with caffeine. Finally, the company dilutes the mixture with carbonated water. Buzz Cola incurs the following costs (in thousands):

Lime flavoring.......................................................................................................... $ 920

Production costs of "cents-off" store coupons for customers.................................. $ 530

Delivery truck drivers' wages.................................................................................. $ 295

Bottles................................................................................................................... $ 1,190

Sales commissions................................................................................................... $ 325

Plant janitors' wages............................................................................................. $ 1,000

Wages of workers who mix syrup........................................................................ $ 7,700

Customer hotline...................................................................................................... $ 190

Depreciation on delivery trucks............................................................................... $ 225

Freight-in on materials......................................................................................... $ 1,300

Plant utilities........................................................................................................... $ 650

Depreciation on plant and equipment.................................................................. $ 3,200

Payment for new recipe....................................................................................... $ 1,190

Salt............................................................................................................................ $ 25

Replace products with expired dates upon customer complaint.............................. $ 40

Rearranging plant layout..................................................................................... $ 1,700

Lemon syrup........................................................................................................ $18,000

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 breakdown production costs into three subcategories: Direct Materials, Direct Labor, or Manufacturing Overhead.
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?

Transcribed Image Text:

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