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Your assignment is to prepare and submit a paper on cost scenario. Balance 30,000 may be outsourced to the OEM at US$14. Here again, the variable cost has to be reduced to US$5. Lisa Morgan will forfe
Your assignment is to prepare and submit a paper on cost scenario. Balance 30,000 may be outsourced to the OEM at US$14. Here again, the variable cost has to be reduced to US$5. Lisa Morgan will forfeit the larger part of her bonus, but she will receive some bonus for running the factory at capacity.
ClearHear appears to be losing out due to underutilization of capacity. ClearHear must work on costing based on volumes so that they have clear prices to offer on voluminous orders like the present order.
There is maximum risk potential when the order is outsourced. The OEM has good track record on delivery and has won several quality awards for its manufacturing processes. However, once the order is outsourced to this OEM, the risk potential exists until the goods are delivered.
Internally too, there is risk potential due to decrease in the amount of variable cost. Nevertheless, due to the volume of the order, there is the possibility of reducing the variable cost without compromising quality.
In my opinion, Option 2 is the best alternative solution. This is the only option for ClearHear to get the job done through a reliable OEM at a cost it cannot manufacture the cell phones. The problem of acting against the company's statement of values exists in this option.
