P2-47B Classify costs along the value chain (Learning Objectives 2 & 4)

Jazzy 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. Jazzy Cola incurs the following costs (in thousands):

Delivery truck drivers’ wages............................................................................... $ 265 Lemon syrup......................................................................................................... $20,000 Depreciation on delivery trucks........................................................................... $ 100 Lime flavoring....................................................................................................... $ 920 Payment for new recipe....................................................................................... $ 1,190 Customer hotline.................................................................................................. $ 190 Sales commissions................................................................................................ $ 400 Production costs of “cents-off” store coupons for customers............................. $ 470 Rearranging plant layout...................................................................................... $ 1,500 Freight-in on materials......................................................................................... $ 1,700 Depreciation on plant and equipment................................................................. $ 2,900 Bottles.................................................................................................................. $ 1,210 Salt........................................................................................................................ $ 30 Plant utilities........................................................................................................ $ 850 Wages of workers who mix syrup....................................................................... $ 7,900 Plant janitors’ wages........................................................................................... $ 1,050 Replace products with expired dates upon customer complaint....................... $ 60 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?