Managerial Accounting

Value chain represents the activities an organization get involves in when changing the input to outputs. The value chain consists of research, product design, production, marketing and sales, distribution, and customer support which comes after the sale. For a business to ensure profit, it has to know the cost of the products that it avails to its consumers. Product costs refer consist of the direct costs of the materials, direct labor costs, and the manufacturing costs that are incurred (Jones & Bethmann, 2019). The areas of the value chain that should be included in calculating product costs are the product design and the production costs. This is because the activities are directly involved with the product.

 Product design cost involves the planning function, examining as well as optimizing costs of new products at design, planning and design size (Warren & Tayler, 2018). This involves spending on the looks of the product. Because this is part of the product, it should therefore be included in the calculation of the product costs. Similarly, production cost should be included in the calculation as it involves costs that a business undergoes from making a product. There are costs of production related to raw materials and labor required to make a product. Therefore because production costs are directly related to a product, they should be included in the product cost calculation.

The marketing and sales, distribution, and customer support after sales can be classified under period costs.  Period costs consist of selling and administrative expenses. Marketing involves advertising products, maybe on billboards, online, or any other form of advertising. Expenses associated with selling come as a result of marketing and distributing products to consumers. For products to reach the final user, they have to be transported or distributed.