Johnson and Sons Ltd produces organic orange juice from oranges it grows. Unfortunately, it has been a bad year for oranges because of severe frosts. Johnson has only 10 000 litres of juice. It usually sells 15 000 litres at $3 per litre. The variable costs of raising the oranges are $0.50 per litre. Johnson has loyal customers, but its managers are worried the entity will lose customers if it does not have juice available for sale when people stop by the farm. A neighbour is willing to sell 5000 litres of extra orange juice at $2.95 per litre.

Required

(a) Which type of non-routine operating decision is involved here? What are the managers’ decision options?

(b) Using the general decision rule, what is the most per litre 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) Is the quality of the neighbour’s juice a concern to Johnson’s managers in making this decision? Why?

(e) List another qualitative factor that might affect the managers’ decision.