Question

Value chain and classification of costs, car company.

General Motors incurs the following costs:
a. Electricity costs for the plant assembling the Chevrolet Camaro
b. Transportation costs for shipping the Camaro to dealers
c. Payment to Shelby Designs for the design of the Camaro.
d. Salary of an engineer working on the next generation of Camaros
e. Cost of GM employees' visit to an auto show to demonstrate the Camaro
f. Testing the Camaro at the GM track
g. Payment to television network for running Camaro advertisements
h. Cost of brake pads purchased from outside supplier to be installed on the Camaro
Required:
Classify each of the cost items (a-h) into one of the business functions of the value chain.
1) Research and development
2) Design of products and processes
3) Production
4) Marketing and sales
5) Distribution
6) Customer service

Answer 1

The costs for General Motors are categorized across different functions of the value chain such as electricity and brake pad costs as production, transportation costs as distribution, design payment as the design of products and processes, engineer's salary and testing as research and development, and marketing costs as marketing and sales.

Step-by-step explanation:

The classification of costs for General Motors in relation to the value chain involves assigning each cost to one of the business functions such as research and development, design of products and processes, production, marketing and sales, distribution, and customer service. Here's how General Motors' costs would be classified:

• Electricity costs for the plant assembling the Chevrolet Camaro (Production)
• Transportation costs for shipping the Camaro to dealers (Distribution)
• Payment to Shelby Designs for the design of the Camaro (Design of products and processes)
• Salary of an engineer working on the next generation of Camaros (Research and Development)
• Cost of GM employees' visit to an auto show to demonstrate the Camaro (Marketing and Sales)
• Testing the Camaro at the GM track (Research and Development)
• Payment to television network for running Camaro advertisements (Marketing and Sales)
• Cost of brake pads purchased from outside supplier to be installed on the Camaro (Production)

These classifications help in assessing each activity's contribution to the final value of the product and in managing costs effectively. For example, the costs involved in producing cars involve significant amounts of labor and physical capital, which can vary greatly from industry to industry and are often influenced by factors such as economies of scale.