Clear Hear is a company that deals with cell phones. This manufacturer runs two production lines in their factory, the alpha and beta models. The alpha model sells at $20 and the beta model has a selling price of $30. The Clear Hear Company values their customer’s satisfaction and is more concerned with the time given to the product which is aimed at meeting the customer’s expectations. They have effective employee standards. Like all business organizations, Clear Hear also wants to improve business, increase revenue and maximize profit. They want to reduce the production costs and at the same time reach the ideal production levels. They are also in search of methods to determine the appropriate fixed and variable costs which will help increase the profit.
Recommendations for increasing revenue
Revenue will be the sum of profits acquired by the company before taxation. Various sales and marketing strategies will be useful to increase the revenue. For this, the product should have clarity and appeal. It must satisfy the needs and wants of the customer. The customers should feel elegant, more striking, highly valued, esteemed, and more satisfied. As there are innumerous cell phones in the competitive world, all companies are trying to provide these and are invading the marketplace with new varieties and modifications. The price of the cell phone is very crucial as to target various customers. The price elasticity demand will adjust the percentage in the quantity demanded in reply to a cost change. These will show the number of consumers who react in their purchasing choice to a variation in the cost. “The basic formula used to determine price elasticity is
e= (percentage change in quantity) / (percentage change in price).
If price increases by 10% and consumers respond by decreasing purchases by 20%, the equation computes the elasticity coefficient as -2” (Price elasticity, n.d, para.3).
It is mainly valued according to the benefits it offers and the competency on the price is not a matter to increase the revenues. The fact is, a product like Clear Hear cell phones can meet the expectations of the customers. They have to study the needs of the consumers and then it can influence the people in the marketplace. The revenue-making consists of the proper contact success, variety segregation, and reliability production. The company can fight against the competitors with the presentation of the product, its accessibility, company profile, and shopper support, thereby helping to increase the revenue.
Recommendations for achieving ideal production levels
For achieving the target of 100,000 cell phones within a short span of time, there should be the concern for the quality of the product. Clear Hear has no compromise with the quality and its standards. It should be well planned to reach the ideal production levels and at the same time, satisfy the customers and attain company standards. But the important thing is it will be able to maximize the profit. As offered by OEM to achieve the production of 100,000 cell phones with the same quality that of Clear Hear, it will be by the $14 per unit. The beta models is having more productive costs, and this will make the production of cell phones with OEM a partner, thereby reaching the targeted numbers and maximizing the profit.
Recommendations for Determining How Fixed and Variable Costs should be adjusted to maximize profit
The key to perceptive rivalry in the market is to recognize that the whole revenue curve is managed completely by customer behavior. Companies can only manage expenses. The affiliation among fixed and variable outlay is critical to appreciative capitalism in common and marketplace rivalry in particular. Variable cost per unit of the alpha is 8 and beta is 12, and at the same time Fixed overhead of the Alpha is 9 and beta is 10 units. So that it is very much necessary to assess the fixed and variable cost to maximize the profit. The affiliation among fixed and variable outlay is critical in understanding entrepreneurship in broad-spectrum and marketplace rivalry in particular. It is probable for fixed and variable outlay to be completely unconnected. “The key to understanding how competition functions, however, derives from understanding this relationship between changes in variable costs and the shift in $max to a point of higher volume and higher revenues. The key is simply that different firms will have different profit levels, volume levels, and $max levels depending on how they implement technology even in the same market for the same item with the same consumers” (How Cost Effect Profits, 2000, para.12).
The key to rivalry tasks, though, obtains from understanding this affiliation among alterations in variable outlay and the move in $max to a position of superior volume and superior profits. The opening of new knowledge will essentially amplify earnings, diminish prices, and develop manufacture. This is accurate even if the thing purchased by the customer demonstrates no considerable modification for the reason that the new knowledge outcome is exclusively in manufacture effectiveness.
Recommendations for Reducing Costs. Discuss whether and how fixed and variable costs could be lowered
Dropping Costs is not only the decrease of exact expenses. Variable outlay develops by way of superior levels of manufacture. If there are merely variable outlays, at zero construction the entire outlay will be zero. The arrangement of costs in organizations depends on the numerous alternatives the organization receives and on the efficiency of internal measures and exterior agreement. Scrutinize that the fixed price per unit will reduce by means of increases in construction. This characteristic of fixed costs is significant to believe in evaluating the scalability of a company. “A key statement will relate the way demand interacts with technological innovation. In particular, we shall demonstrate that, given the same system of technological opportunity and generation process:
- With long-term decline in demand, firms will prevalently cut fixed costs;
- With long-term rise in demand, firms will prevalently choose innovations that allow them to reduce variable costs” Piana, 2006, para.4).
- The OEM sought to induce Lisa that not only could they manufacture up to 100,000 units of the Alpha on small notice, but the routine of the cell phone would be indistinguishable to Clear Hear’s product. The price would be a non-negotiable $14 per unit. So reducing the cost will help earn more profit.
Clear Hear is a producer of cell phones, where Kendra Sherman works as a business progress specialist. Kendra apprehensively awaits her meeting with Lisa Norman, the invention manager for Clear Hear. The company wants to diminish the production costs and at the same time they would like to arrive at the ideal making levels. They are also looking for techniques to establish appropriate fixed and variable costs which will help in increasing the profit. Recommendation to improve all the above mentioned aspects helps the organization to maximize the profit and minimize the cost of manufacturing.
How Cost Effect Profits. (2000). AzKidsNet. Web.
Piana, V. (2006). Firm specific fixed variable costs: A model of marketing dynamics. Economic Web Institute. Web.
Price elasticity. (n.d.). AMITY University. Web.