Clear Hear

Running Head: CLEAR HEAR 1

Clear Hear Business Proposition

Geoff Thompson

University of Phoenix

MBA 021; ECN561

Basil Al-Hashmi

June 1, 2010

CLEAR HEAR 2

Clear Hear Business Proposition

Clear Hear has a business decision to make and has a couple of options at their disposal with regard to the proposition. It has been presented with an opportunity to fulfill an order from Big Box for one hundred thousand of their Alpha model phones. Big Box is willing to pay fifteen dollars per phone for this particular order. The factory that supplies these phones also produces a second line of phones; this model line is known as Beta, this model of phone is more profitable to Clear Hear but it is also more costly to produce. Option one, the current factory is running under their maximum capacity by seventy thousand phones. It can adjust production on either line to increase or decrease the current production levels in order to accommodate orders. Clear Hear can shift production away from the more profitable Beta model by thirty thousand units and utilize the excess capacity in order to fulfill the order. Option two; there is an outside firm that is capable of manufacturing the Big Box order to the specifications of Clear Hear. They have extensive experience manufacturing phones for other brands, and have won several quality awards. The company has stated they can fulfill the order for Big Box in the allotted time frame and do it for a price of fourteen dollars per unit. Some further background based on production costs are outlined in the following table:

Unit Profitability Report

| Alpha model | Beta model |

Price per unit | 20 | 30 |

Variable cost per unit | 8 | 12 |

Fixed overhead | 9 | 10 |

Profits | 3 | 8 |

Note. All unit prices are in dollars.

CLEAR HEAR 3

On the surface, option two appears to be the better choice. It allows for an immediate profit of one hundred thousand...