Cost Scenario Case Study Example | Topics and Well Written Essays - 750 words

Cost Scenario - Case Study ExampleBalance 30,000 may be come onsourced to the OEM at US$14. Here again, the variable cost has to be cut back 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 rolls like the founder order.There is maximum risk potential when the order is outsourced. The OEM has good track record on language 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, on that point 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 opini on, Option 2 is the best alternative solution. This is the only option for ClearHear to claim the job make by means of a reliable OEM at a cost it can non manufacture the cell phones. The problem of acting against the companys statement of values exists in this option. ... It would be conk out if the variable cost can be reduced further to US$4.In option 2, the order is outsourced to an OEM. The OEM is reliable and has its own manufacturing facilities. The OEM is as good as ClearHear, or even better, where production is concerned. Risk AnalysisThere 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 re ducing the variable cost without compromising quality.Risk factor can happen through any unforeseen event, acts of God, contingencies, etc. Recommendation of the best alternative solutionIn 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 companys statement of values exists in this option. However, this has to be balanced against cutting down on variable costs and increasing risk of encountering loss in the event the variable cost cannot be brought down to US$5 (Opportunity Cost).Outsourcing is valuable and valid and this option must be exercised when other options fail to satisfy the business needs. The business exists to make profits. It does not make sense to reject the order due to inability to hold on to companys statement of values. It is possible to keep the employees working by securing orders where the pric es do not have to be slashed (Cost Concepts).ConclusionThere is