One issue that firms face daily is how to maximize profits. After analyzing the business operation, management may find that a reduction in labor, materials, and other resources would allow the business to achieve higher profits (University of Phoenix, 2009). Such is the case with Clear Hear manufacturing company. The Clear Hear business proposal provides recommendations that Clear Hear should incorporate to increase revenue for the company, and achieve ideal production levels. The proposal also list ways the company can adjust fixed and variable cost to maximize profits. The proposal will also identify methods the company can use to reduce cost.
Lisa Norman, the production manager has a major decision to make. Kendra Sherman the business development specialist has secured an order for 100,000 phones. The phones are similar to the alpha model. The firm has two production lines one produces the alpha model and the other line produces the beta model. The alpha model has a unit price of $20 and after variable cost and fixed overhead the company will see a $3 profit. The beta model has a unit price of $30; however, after variable cost and fixed overhead the firm will see an $8 profit. A large portion of Lisa’s bonus depends on running the plant at capacity. The largest portion of Lisa’s bonus relies on the factories total profitability (University of Phoenix, 2009).
The major chain Big Box has requested the phones be ready within 90 days and Big Box will not extend the date. Clear Hear has the capacity to produce 70,000 phones. To complete the order, Lisa can switch 30,000 units over to the beta line. Before Lisa proceeds, she has several issues to consider. Big Box is willing to pay $15 for each unit, which would result in a profit loss because the phones have a unit price of $20. Clear Hear would experience an economic loss of $5 per unit, which totals $500,000 (University of Phoenix, n.d.).
Another manufacturer, Original...