Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 20

Flexible and Committed Resources, Capacity Usage for a Service
Jana Morgan is about to sign up for cellular telephone service. She is primarily interested in the safety aspect of the phone; 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:

Both plans are subject to a $25 activation fee and a $120 cancellation fee if the service is cancelled before 1 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 (a) committed resources or (b) flexible resources.
2. CONCEPTUAL CONNECTION 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. CONCEPTUAL CONNECTION 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 will be most cost effective? Why?
4. CONCEPTUAL CONNECTION Analyze your own cellular phone plan by comparing it with other possible options.