Cost drivers and value chain. Prentice-Hall Publishing is developing a new book for international accounting. For the development and publication of this book, the company has undertaken the following activities in its value chain:

Identify the customer need (what do faculty and students want in a book?)

Find an author

Market the book to faculty

Author writes book

Process orders from bookstores

Editor edits book

Receive unsold copies of book from bookstore

Author rewrites book

Provide on-line assistance to faculty and students (study guides, test banks, etc.)

Print and bind the books

Deliver the book to bookstores

During the process of product development production, marketing, distribution and customer service,

Prentice-Hall has kept track of the following cost drivers:

Number of books ordered by bookstores I

Number of unsold books sent back from bookstores

Number of deliveries made to bookstores

Number of pages of text

Amount paid to the author

Machine hours for running the printing and binding equipment

Hours spent with prospective customers to sell the book

Number of potential authors interviewed

Number of changes editor makes

Number of times author must do rewrites

Number of schools the marketing representative visits to discuss book ideas

Number of schools the marketing representative visits to market the book

Marketing representative salary

Number of schools that adopt the new book

Number of faculty that adopt the new book

1. Identify each value chain activity listed at the beginning of the exercise with one of the following value chain categories.

a) Product development b) Production, c) Marketing, d) Distribution, and e) Customer Service

2. Use the list of cost drivers above to find one or more reasonable cost drivers for each of the activities in Prentice-Hall’s value chain.