Classify costs along the value chain (Learning Objectives 2, 4)}

ShaZam 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, ShaZam dilutes the mixture with carbonated water.

ShaZam Cola incurs the following costs (in thousands):

\section*{Requirements}
1. Use the following format to classify each of these costs according to its place in the value chain. (Hint: You should have at least one cost in each value-chain function.)

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?

Transcribed Image Text:

Plant utilities Depreciation on plant and equipment Payment for new recipe. Salt......... 6 750 3,000 1,000 25 Replace products with expired dates upon customer complaint. 50 Rearranging plant layout.. 1,100 Lemon syrup 18,000 Lime flavoring. 1,000 Production costs of "cents-off" store coupons for customers 600 Delivery truck drivers' wages 250 Bottles...... 1,300 Sales commissions 400 Plant janitors' wages 1,000 Wages of workers who mix syrup. 8,000 Customer hotline......... 200 Depreciation on delivery trucks. 150 Freight-in on materials 1,500 Total...... $38,325