Costs of production at San Juan Cell Phones
This is clearly a challenge for Lisa. If Lisa decides to take the order she will have the opportunity to run the factory to capacity over the next three months and fulfill a Company Value by keeping employees working, in addition, she will have a bonus check on her pocket. This will be the optimal decision if the factory had excess capacity of 100,000 and Big Box asking price remains $20 per unit. Let’s say Lisa decides to use the Beta Model Line to make the additional 30,000 units, since we are short on information let’s assume that because of the production line change the factory will be 30,000 short on Beta Models. Based on table 1 (Unit Profitability Report) and if units are sold accordingly then San Juan Cell Phones will generate a profit of $90,000 by manufacturing and selling the Alpha model vs. $240,000 profit generated by manufacturing and selling the Beta model. San Juan Cell Phones will risk $150,000 in profit with the production line change alternative. If the company decides to honor the asking price then San Juan Cell Phones will generate losses. If phones are sold at $15 each and variable cost per unit remains same based on table 1 (Unit Profitability Report) then the company will lose $2 per unit making it a $200,000 or a $140,000 deficit. Variable cost will have to decrease $2+ in order to gain some profit. Another alternative will be to hire the OEM to manufacture the entire order. This alternative will be the most profitable one with a $100,000 profit gain without literary doing anything.
Mrs. Norman needs to realize that gains may not be always in the shape of money and that she needs to comply with company values in order to maintain integrity which is very important in business today. It is clear that a deal with a major chain like Big Box will bring a good advertisement for the company which eventually will bring more buyers and that will bring more profit to the company, so no matter what...
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