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, the company dilutes the mixture with carbonated water. ShaZam Cola incurs the following costs (in thousands):

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. Calculate the total costs for each value chain category.
4. How much are the total 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?

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Plant janitors' wages. Delivery truck drivers' wages. Payment for new recipe...... Depreciation on delivery trucks Plant utilities........ $ 1,000 $ 235 $ 1,300 $ 300 $ 350 Lime flavoring...... Rearrangement of plant layout. Bottles............ Salt............. Sales commissions....... $ 1,100 $ 1,000 $ 1,200 $ 35 $ 400 $ 630 Production costs of "cents-off" store coupons for customers............ Lemon syrup...... $ 19,000 Replacement of products with expired dates upon customer complaint......... $ Depreciation on plant and equipment.. Wages of workers who mix syrup. 40 $ 2,800 $ 8,500 $ 160 Customer hotline............ Freight-in on materials $ 2,000