Opertunitiy Cost Scenario

Opertunitiy Cost Scenario

  • Submitted By: Powjo
  • Date Submitted: 09/29/2009 5:34 PM
  • Category: Business
  • Words: 614
  • Page: 3
  • Views: 1375

Opportunity Cost Scenario Summary

Opportunity Cost Scenario Summary
Joanna Paolilli
University of Phoenix
ECO 561 - Economics
Scott Cain
June 11, 2009

Opportunity Cost Scenario Summary
Should Kendra accept the order from OEM, or should production be done in house? In the following report, I will identify alternative solution so that Kendra is able to meet her end-state goal. Through analysis and evaluation the alternatives will be identified. A risk analysis will be performed to categorize the potential risk and negative consequences that may arise through the following alternative solutions. Finally, I will make recommendations that will help Kendra to make the best decision to benefit ClearHear.
Identify alternative solutions to meet end-state goals

Alternative 1: Produce Product In-house

Alternative 2: Buy from other Vendor (Original Equipment Manufacturer)

Analyze and Evaluate alternatives identified

Alternative 1: Produce Product in-house
For 70,000 Units

Only Variable cost will be considered because fixed cost has already been allocated amongst the existing units.

Additional Net income generate from selling first 70000 units (is contribution Margin) = 70000 X 7 = 490000.

Next 30000 units

Additional income generated = 30000 X 7 - Opportunity cost of Beta forgone
= 30000 X 7- 30000 X18 = (330000)

Hence the total additional income generated is 490000+ (330000) =160000

Alternative 2: Buy from other Vendor (Original Equipment Manufacturer)

Additional net income would be (15-14) X 100000 = 100000
(Since the cell phone would be purchased from OEM and supplied to the customer.)

Opportunity Cost Scenario Summary
Perform risk analysis to identify potentials risks and negative consequences

Alternative 1: Produce product in-house

The above analysis shows that...

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