Jana Morgan is about to sign up for cellular telephone service. She is primarily inter- ested in the safety aspect of the phone-that is, she wants to have one available for emergencies. She does not want to use it as her primary phone. Jana has narrowed her options down to two plans:
Plan 1 Plan 2
Monthly fee . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 30
Free local minutes . . . . . . . . . . . . . . . . . . 60 120
Additional charges per minute:
Airtime . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.40 $0.30
Long distance . . . . . . . . . . . . . . . . . . . . . 0.15 -
Regional roaming . . . . . . . . . . . . . . . . . . 0.60 -
National roaming . . . . . . . . . . . . . . . . . . 0.60 0.60
Both plans are subject to a $25 activation fee and a $120 cancellation fee if the ser- vice is cancelled before one year. Jana's brother will give her a cell phone that he no longer needs. It is not the latest version (and is not Internet capable), but will work well with both plans.
Required
1. Classify the charges associated with the cellular phone service as (1) committed resources or (2) flexible resources.
2. Assume that Jana will use, on average, 45 minutes per month in local calling. For each plan, split her minute allotment into used and unused capacity. Which plan would be more cost effective? Why?
3. Assume that Jana loves her cell phone and ends up talking frequently with friends while traveling within her region. On average, she uses 60 local minutes a month and 30 regional minutes. For each plan, split her minute allotment into used and unused capacity. Which plan would be more cost effective? Why?