Building Blocks of Managerial Accounting 99 PROBLEMS Group A P2-50A 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 flavouring 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): $ Plant utilities Depreciation on plant and equipment Payment for new recipe 750 3,000 1,000 CHAPTER 2 Salt 25 1,100 18,000 1,000 600 1,300 Replace products with expired dates upon customer complaint Rearranging plant layout Lemon syrup Lime flavouring Production costs of "cents-off' store coupons for customers Delivery truck drivers' wages.. Bottles Sales commissions. Plant janitors' wages Wages of workers who mix syrup Customer hotline Depreciation on delivery trucks. Freight-in.... Total 400 1,000 8,000 150 1.500 $38,325 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.) Production Design of Products or Processes Direct Materials R&D Manufacturing Overhead Direct Labour Marketing Distribution Customer Service 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? Building Blocks of Managerial Accounting 99 PROBLEMS Group A P2-50A 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 flavouring 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): $ Plant utilities Depreciation on plant and equipment Payment for new recipe 750 3,000 1,000 CHAPTER 2 Salt 25 1,100 18,000 1,000 600 1,300 Replace products with expired dates upon customer complaint Rearranging plant layout Lemon syrup Lime flavouring Production costs of "cents-off' store coupons for customers Delivery truck drivers' wages.. Bottles Sales commissions. Plant janitors' wages Wages of workers who mix syrup Customer hotline Depreciation on delivery trucks. Freight-in.... Total 400 1,000 8,000 150 1.500 $38,325 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.) Production Design of Products or Processes Direct Materials R&D Manufacturing Overhead Direct Labour Marketing Distribution Customer Service 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
