Chapter 2, Problem 2.18AE

Classify costs along the value chain for a retailer (Learning Objective 2)

Suppose Motor Shack incurred the following costs at its Ann Arbor, Michigan, store:

Newspaper advertisements	$ 5,100
Payment to consultant for advice on location of new store	$ 2,700
Purchases of merchandise	$ 37,000
Freight-in	$ 3,700
Salespeople’s salaries	$ 4,600
Depreciation expense on delivery trucks	$ 1,500
Research on whether store should sell satellite radio service	$ 250
Customer Complaint Department	$ 550
Rearranging store layout	$ 650

Requirements

1. 1. Classify each cost as to which category of the value chain it belongs (R&D, Design, Purchases, Marketing, Distribution, or Customer Service).
2. 2. Compute the total costs for each value chain category.
3. 3. How much are the total product costs?