Clear Hear Revenue, Cost Concepts, And Market Structure Proposal

940 words - 4 pages

Clear Hear Revenue, Cost Concepts PAGE 1
Clear Hear Revenue, Cost Concepts, and Market Structure ProposalUniversity of PhoenixClear Hear Revenue, Cost Concepts, and Market Structure ProposalClear Hear, a manufacturer of cell phones, is always looking to increase its revenue, maximize its production operation while adhering to its corporate core values which are to keep its employees working, provide customers with products on-time, reliability that meets or exceed expectations, and treat business partners the same as Clear Hear wants to be treated. This paper presents an opportunity for Clear Hear to increase its revenue but not without challenges to its sales margins and production operations due to the introduction a new unit selling price. The paper continues with providing the process used to make recommendation including supportive economic concepts and assumptions made.Opportunities and ChallengesClear Hear has the opportunity to secure a 100,000 piece order of a product similar to its Alpha model. Currently, Clear Hear manufactures two different cell phones; Alpha model and Beta model. Clear Hear's business development specialist, Kendra Sherman, has locked in an order from a major chain store, Big Box, which is running a telephone service provider promotion. Big Box is not willing to pay more than $15 per unit; currently Clear Hear selling price for its Alpha model is $20 which yields a 15% margin. Clear Hear selling price of its Beta model is $30 which yields a 27% margin as per the chart 1 (Clear Hear Scenario, n.d.).
Clear Hear

Phone Model

Alpha

Beta

Price per unit

$20

$30

Total Cost

$17

$22

Variable cost per unit

$8

$12

Fixed overhead

$9

$10

Profits

$3

$8

Sales margin

15.00%

26.67%

(chart 1)Another stipulation is that Clear Hear has 90 days to produce the Big Box order but Lisa Norman, the production manager, has informed Kendra Sherman that Clear Hear's production can only accommodate an excess capacity of 70,000 units within the next 3 months on the Alpha production line (Clear Hear Scenario, n.d.). Clear Hear is facing the challenge of not being able to deliver all 100,000 units of its Alpha model to Big Box thus also putting at risk Kendra's commission. Failure of not completing production for Big Box also hinders Lisa from attaining her incentive plan portion that is based on the running the factory of capacity along with loss profit for Clear Hear's factory.Options and RecommendationsOpportunity cost is "the difference in return between a chosen investment and one that is necessarily passed up." (Opportunity Cost, n.d., para 3). The gross revenue opportunity for the Big Box order is $1.5 million dollars. Clear Hear's Alpha production line can accommodate 70,000 units, and the balance 30,000 units can be transferred to Beta production line to complete the order. Big Box nonnegotiable unit price of $15 results in a -13% margin for the Alpha model. Another option is to outsource the...

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