Revenue, Cost Concepts, and Market Structure Proposal

Revenue, Cost Concepts, and Market Structure Proposal

Geneva C. Reilly

University of Phoenix

Econ/561-Economics

David L. Booker DPA

March 3, 2010

Revenue, Cost Concepts, and Market Structure Proposal

Kendra Sherman is the business development specialist for Clear Hear. Clear Hear is a manufacture of cell phones, which has received an order for a substantial number of phones to support a promotion, ran by a major service provider, Big Box. Kendra has met with the production manager Lisa Norman, and reviewed the profitability report provided. The following is the recommendations that will be given with explanation and justification.

Recommendations

Increasing Revenue

The options available to Kendra and Lisa are identified in the following three options. One would be to accept the order and produce the 70,000 phones by utilizing the facilities excess capacity, and outsource the remainder to the Original Equipment Manufacturer (OEM). However, Clear Hear could outsource the entire production order out to OEM, this would be the second option. The third option is clear; the entire production order could be produce in-house by using the spare production capacity as well as substituting the production capacity of the Beta model to the Alpha model

Pro’ and Con’s

Accepting the order and produce the 70,000 phones by utilizing the facilities excess capacity, and outsource the remainder to the Original Equipment Manufacturer (OEM), would not quit suit the company, as far as the information provided in unit profitability report. This report shows that Clear Hear maintains an in-house cost for producing said units of $17 per unit. This cost is above what the buyer is willing to pay which is $15. Therefore, it would not be cost effective to utilize the option. For the company more opportunity for bringing down cost will arise if excess capabilities in-house are utilized.

Option two; outsource the entire production order out to the OEM. As...