[ktdanielson]

I need help ASAP! Thanks!

OJ Company usually sells 15,000 gallons of juice ast $3 per gallon. Due to bad crop they only have 10,000 gallons. Their variable cost to raise the oranges is $.50. A supplier will sell them 5,000 gallons at $2.95 per gallon. What is the most they should be willing to pay? My thinking is that for relaxing a short term constraint for direct materials is that you would be willing to pay not only what you are already paying but also some or all of the contribution margin per unit of the constrained resource.

$3.00 Selling Price - $.50 Variable Cost = $2.50 Contribution margin per gallon
$2.50 per gallon would be the most they should pay.

Does this sound reasonable or am I missing something?

[ktdanielson]

I need help ASAP! Thanks!

OJ Company usually sells 15,000 gallons of juice ast $3 per gallon. Due to bad crop they only have 10,000 gallons. Their variable cost to raise the oranges is $.50. A supplier will sell them 5,000 gallons at $2.95 per gallon. What is the most they should be willing to pay? My thinking is that for relaxing a short term constraint for direct materials is that you would be willing to pay not only what you are already paying but also some or all of the contribution margin per unit of the constrained resource.

$3.00 Selling Price - $.50 Variable Cost = $2.50 Contribution margin per gallon
$2.50 per gallon would be the most they should pay.

Does this sound reasonable or am I missing something?

[morgaine300]

Ditto about double posting the same question. Again, I've moved these into the same thread. (Not fun when you spend a half hour answering someone just to discover the question was posted elsewhere and someone else already answered it - and yes, I've had that happen.)

As for this one, I don't go far enough into managerial to do a thing like this. I don't know that I've even seen anything about a constrained resource, but certainly not since class if I have. So you may have to have more patience and see if someone else does this one.