Revenue, Cost Concepts, and Market Structure Proposal PAGE \* MERGEFORMAT 1
IntroductionClear Hear is a cell phone manufacturer that is looking to implement new methods to increase its revenue and profitability, along maximizing its production processes while abiding the corporate policies of the company. The company is known to provide products to customers in a timely manner, and have a respectable reputation in treating business partners fairly in the telecommunications industry. Dealing with thousand piece orders of cell phones with huge chain stores, like Big Box, the company has to determine fair prices to satisfy both ends of each of the companies. In the next couple of paragrap ...view middle of the document...
Clear Hear's respectable reputation is on the line of providing the cell phones to Big Box in a timely manner, along with putting to risk Kendra's commission. Failure of not completing the orders for Big Box can delay Lisa from attaining her incentive plan, which is based on running the factory, and resulting in a huge loss for Clear Hear.RecommendationsClear Hear's gross revenue opportunity for the Big Box order is $1.5 million dollars (100,000 x $15). Opportunity cost is defined as "the cost of passing up the next best choice when making a decision" (Investorwords.com, 2010). Knowing that Clear Hear's Alpha production line can accommodate 70,000 units, the remaining 30,000 units can be either transferred to the Beta production line to complete the order, or outsourced to an alternative manufacturer company that produces identical cell phones at fair prices. However, Big Box's nonnegotiable unit price of $15 results in a negative $2 dollars in profits for the Alpha model and a $1 dollar profit in an Alternative Manufacturer model (AM). Per the chart below I referred the fixed and variable costs as the Total Cost.
Price per unit
Based on the figures, the AM model allows Clear Hear to secure the Big Box order and assure the requested delivery date of 90 days. Like Clear Hear, the AM has experience in manufacturing cell phones and is known to offer quality products to customer as well as business affiliates. In addition, the AM alternative satisfies the Big Box requirements by providing the units in a timely manner and reliability that meets or exceeds their expectations. Clear Hear can also outsource more of the orders to AM; for instance, 30, 000 pieces can be produced at Clear Hear's Alpha line, and the 70,000 pieces can be allocated to AM. By Clear Hear outsourcing more orders, the company will be able to increase its production and deal with other potential companies and their requests. Furthermore, it will allow them to earn additional revenue of $10,000 per the chart below.
Alpha model (30K)
AM model (70K)