Question: Cost drivers and value chain. Torrance Technology Company (TTC) is developing a new touchscreen smartphone to compete in the cellular phone industry. The company will sell the phones at wholesale prices to cell phone companies, which will in turn sell them in retail stores to the final customer. TTC has undertaken the following activities in its value chain to bring its product to market:
A. Perform market research on competing brands
B. Design a prototype of the TTC smartphone
C. Market the new design to cell phone companies
D. Manufacture the TTC smartphone
E. Process orders from cell phone companies
F. Deliver the TTC smartphones to the cell phone companies
G. Provide online assistance to cell phone users for use of the TTC smartphone
H. Make design changes to the smartphone based on customer feedback During the process of product development, production, marketing, distribution, and customer service, TTC has kept track of the following cost drivers:
Number of smartphones shipped by TTC Number of design changes Number of deliveries made to cell phone companies Engineering hours spent on initial product design Hours spent researching competing market brands Customer-service hours Number of smartphone orders processed Machine hours required to run the production equipment
1. Identify each value-chain activity listed at the beginning of the exercise with one of the following value-chain categories:
a. Design of products and processes
b. Production c. Marketing
d. Distribution
e. Customer service
2. Use the list of preceding cost drivers to find one or more reasonable cost drivers for each of the activities in TTC's value chain.