Problem:
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.
Problem 1: Which type of non-routine operating decision is involved here? What are the manager's decision options?
Problem 2: Using the general decision rule, what is the most per gallon Johnson's managers would be willing to pay for additional juice?
Problem 3: Why would Johnson be willing to pay the amount calculated in part B for more juice?
Problem 4: List another qualitative factor that might affect the manager's decision.