Clear Hear

Lisa Norman manages production for Clear Hear, a cell phone manufacturer.   She has received an offer for 100,000 Alpha model cell phones.   Although Clear Hear is capable of producing the cell phones, the deal may prove too costly to accept.   Big Box, the company who wishes to purchase the cell phones, refuses to pay more than $15 per unit and it costs Clear Hear $20 to make the Alpha model.   Lisa’s bonus is based on operating at capacity and profitability, and although Lisa has an excess capacity of producing 70,000 Alpha model units, the profitability of these units stand in question.   Lisa can convert her Beta model line over to produce the additional 30,000 units needed, but in doing so, she would lose an additional $5 profit per phone.   Lisa has a third alternative solution as well, a reputable OEM (Original Equipment Manufacturer) has offered to sell phones to Clear Hear for $14 and is capable of producing all 100,000 units needed in a timely fashion.   Although this alternative sounds appealing, Clear Hears’ value statements indicate Clear Hear employees should be kept working and hiring another manufacturer to produce cell phones will take work away from Clear Hear employees.   This paper will cover a proposal for increasing Clear Hears’ revenue, achieving ideal production levels, adjusting fixed and variable costs to maximize profit and identifying methods to reduce costs, so Clear Hear may accept Big Box’s offer without taking a loss.  
Increasing Revenue
    To increase revenue, Lisa could look to the R&D department for suggestions to increase production or for new features to add, which might distinguish the Clear Hear phone from other phones allowing them to be sold at a higher rate.   Big Box has requested 100,000 phones, which are “nearly identical” to the Alpha Model, this may mean there are features or technologies on this particular phone, which aren’t necessary to seal the deal.   Without the added features or technology, production of this new...