Example #4

Classify each cost according to its place in the value chain. This firm manufactures robots to sell. Compute total product cost, total prime costs, and total conversion costs.

Salaries of telephone salespeople	$500	The robot brain	$61
Depreciation on manufacturing equipment	$650	Rearrange the factory to accommodate making a new robot	$200
Parts to make the exterior shell of the robot	$600	Worker's wages that put the robots together in the factory	$100
Salaries of scientists who developed new model of robot	$1200	Customer hotline for handling inquiries about how to operate the robot	$30
Delivery expense to customers via UPS	$70	Cost of website used to take customer orders.	$10

Value Chain:

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