Revenue, Costs Concepts, and Market Structure Proposal

Revenue, Cost Concepts, and Market Structure Proposal

ECO/561

September 27, 2010

Revenue, Cost Concepts, and Market Structure Proposal

The following report is a proposal for Clear Hear cell phone manufacturer based on revenue, cost concepts and market structure. Clear Hear is a company which has aligned its values to reflect the importance of employee, customer, and business partner satisfaction. Specifically Clear Hear’s values include: keeping employees working, providing customers with products on time with reliability that meets or exceeds their expectations, as well as treating business partners the same as Clear Hear would like to be treated. Clear Hear has recently been given an opportunity to fill a large order of cell phones to support a promotion run by one of its major service providers, Big Box. Production Managers have met and reviewed the profitability report, which has led to the following recommendations.

There are three basic options available to the production management of Clear Hear. Option number one is to accept an order to produce 70,000 units over the next three months. This would utilize the company’s extra capacity, and allow the extra units to be outsourced to (OEM) Original Equipment Manufacturer. The second option would be to outsource the entire production order to OEM. The third and final option is for the entire order to produced at Clear Hears on factory by using all the spare production capacity as well as substituting the production capacity of the higher priced Beta model with the lower priced Alpha model.

There are pro’s and con’s for each one of these option as well as several risks associated with each. It is critical that production management take time to weigh out each option and then proceed with the one that is most beneficial. When weighing out the options it is important to choose the option with lowest opportunity cost for the employees, the customers, as well as the business partners that...