Constrained resource, qualitative factors.
Johnson and Son’s Inc., produces organic orange juice from
oranges it raises. Unfortunately, it has been a bad year for oranges because of
severe frosts. Johnson only has 10,000 gallons of juice. It usually sells
15,000 gallons at $3 per gallon. The variable costs of raising the oranges are
$.050 per gallon. Johnson has loyal customers, but its managers are worried the
company will lose customers if it does not have juice available for sale when
people stop by the farm. A neighbor is willing to sell 5,000 gallons of extra
orange juice at $2.95 per gallon.
A. Which
type of non-routine operating decision is involved here? What are the manager’s
decision options?
B. Using the
general decision rule, what is the most per gallon Johnson’s managers would be
willing to pay for additional juice?
C. Why would
Johnson be willing to pay the amount calculated in part B for more juice?
D. List
another qualitative factor that might affect the managerâ??s decision.
