Chapter 2, Problem 2.31BE

Classify costs along the value chain for a manufacturer (Learning Objectives 2 & 4)

Suppose the smartphone manufacturer Sabre Electronics provides the following information for its costs last month (in millions):

Delivery expense to customers via UPS	$10
Salaries of salespeople	$6
Chipset (the set of chips used on a phone’s motherboard)	$60
Exterior case for phone	$4
Assembly-line workers’ wages	$12
Technical customer-support hotline	$5
Depreciation on plant and equipment	$65
Rearrange production process to accommodate new robot	$1
1-800 (toll-free) line for customer orders	$3
Salaries of scientists who developed new model	$11

Requirements

1. 1. Classify each of these costs according to its place in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. 2. Within the production category, break the costs down further into three subcategories: Direct Materials, Direct Labor, and Manufacturing Overhead.
3. 3. Compute the total costs for each value chain category.
4. 4. How much are the total product costs?
5. 5. How much are the total prime costs?
6. 6. How much are the total conversion costs?