Question

Jana Morgan is about to sign up for cellphone service. She is primarily interested 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 (after free local minutes are used up)     $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 service is cancelled before one year has passed. Jana's brother will give her a cellphone 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 cellphone service as (a) committed resources or (b) 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 will be most cost effective? Why?

3. Assume that Jana loves her cellphone and ends up talking frequently with friends while travelling 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 will be most cost effective? Why?

4. Analyze your own cellphone plan by comparing it with other possible options.

Answer 1

Committed & Flexible charges

Committed Charges	Flexible Charges
Activation fee	Airtime per minute
Monthly fee	Long distance per minute
	Regional roaming per minute
	National roaming per minute
	Cancellation charge

Assume, Jana's usage is 45min per month of local calling.

	Plan 1			Plan 2
Monthly fee			$20			$30
Free local minutes	60			120
Used local minutes	45		$0	45		$0
Unused local minutes	(60 - 45) = 15			(120 - 45) = 75
Total month cost			$20			$30

Since Plan 1 costs only $20 with less unused minutes of 15min, it is the more cost effective plan for Jana, if her usage is only 45min of local calling per month.

Assume Jana's usage is 60min of local calling and 30min of regional calling

	Plan 1			Plan 2
	Minutes	Per min rate	Amount	Minutes	Per min rate	Amount
Monthly fee			$20			$30
Free local minutes	60			120
Used local minutes	60	$0	$0	60	$0	$0
Unused local minutes	(60 - 60) = 0			(120 - 60) = 60
Regional roaming	30	$0.6	$18	30	$0	$0
Total month cost			$38			$30

In the scenario that Jana has 60min of local calling and 30mins of regional roaming calls, Plan 2 with a monthly cost of $30 will be more cost effective for her as compared to Plan 1 with a cost of $38.