Cost Scenario

Cost Scenario
April 30, 2009

    In the Opportunity Cost Scenario Summary there is a challenge that involves the decision making of whether to accept the order of a product, in which it might require to not use another product.   This is a decision that would have to be based on opportunity cost, contribution analysis and cost concepts.   ClearHear is the manufacturer of cell phones that has some challenges with the product.   There are many decisions that are in place whether it is for Kendra Sherman who is the business development specialist that thrives off of making her extra income from bonuses as she runs the factory at full capacity and at factory total profitability.   There will be consideration to analyze, identify and evaluate any alternatives that would help make the company benefit for the long haul.

    There are two models of the production line that ClearHear has, which are Alpha and Beta model.   These models are different in price per unit, variable cost per unit, fixed overhead and profits.   Kendra has secured an order of 100,000 cell phones.   The Alpha model is an identical product of ClearHear that can be supported by a major chain, Big Box.   Big Box will not pay more than $15.00 for each cell phone.   The Alpha model is the closer of the two models.   When looking at the Beta model everything is much higher in price, variable cost, fixed overhead and profits.

    When looking at any contribution analysis one must look at the difference between the fixed cost and the variable cost.   This allows the managerial decision making and problem solving to be useful.   What should be looked at in this would be the sales of the product, the cost of goods sold, variable operating expenses and marketing expenses.   These items are key values to analyze the contribution factor.   The product price, variable cost and fixed overhead for the Alpha model show lower than the Beta model.
    While the cost of a good or service often is thought...