Revenue, Cost Concepts, and Market Structure


Revenue, Cost Concepts, and Market Structure Proposal
April 26, 2010

Revenue, Cost Concepts, and Market Structure Proposal
      Clear Hear scenario
      Clear Hear Corporation is a cell phone manufacturing company (University Of Phoenix, 2008). The company produces two kinds of cell phones for market: the Alpha model and the Beta model. Kendra Sherman is a business development specialist; she has secured an order from a large chain company called Big Box for 100,000 cell phones. Big Box needs the phones for a service promotion the company is running with a telephone service provider. The cell phones ordered are similar to the Alpha model, and Big Box is not willing to pay over $15 per cell phone ordered (University Of Phoenix, 2008). Clear Hear produces the Alpha model for $25 per phone. The company would lose five dollars selling price per phone if it accepts the order, but the company would produce more phones provided the company accepts the deal. Producing the phones would fulfill the company’s statement of values; “Keep our employees working, provide our customers with products on time and which reliably meet or exceed expectations, and treat our business partners the same as we want to be treated (University Of Phoenix, 2008).”
      In this scenario, let us start with evaluating various alternatives in front of the company. Lisa and Kendra have three options.
    • To accept the order, manufacture 70,000 units by utilizing the excess capacity, and outsource 30,000 units to the OEM.
    • Outsource the manufacturing of 100,000 units to the OEM.
    • Manufacture 100,000 units in house by utilizing spare capacity as well as switching production capacity of the beta model to the Alpha model.
  Now, let us evaluate the pros and cons of each of these alternatives. The first alternative of utilizing spare capacity of 70,000 units and outsourcing remaining requirement to OEM does...