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.