Part III Decision Making

During 2020, Ray Corp. had excess capacity of 30,000 units. Each unit would normally sell for $21.00 and cost $7.00 (DM), $4.00 (DL), and $3.50 (OH). Consider the following two scenarios independently.

1. Johnson Company came to Ray Corp., asking to order 10,000 units with slightly reduced functionality. The lower functionality would lower the DM cost to $4.00 per unit, but DL and OH costs would be the same as normal units. Because of the lower functionality, Johnson is requesting a lower price. As the production manager, what is the absolute lowest price per unit you would accept to make the deal? Provide calculations that support your answer and explain why.
2. The Special Olympics came to Ray Corp., asking to order 10,000 normal units engraved with the Special Olympics logo. The engraving would not affect normal DM cost, but would increase DL per unit to $6.00 and OH per unit to $4.00. Instead of paying full price, the Special Olympics is asking for the lowest price Ray Corp would accept to make the deal. As the production manager, what is the lowest price per unit you would accept to make the deal? Provide calculations that support your answer and explain why.

Part III - Decision Making During 2020, Ray Corp. had excess capacity of 30,000 units. Each unit would normally sell for $21.00 and cost $7.00 (DM), $4.00 (DL), and $3.50 (OH). Consider the following two scenarios independently. 1. Johnson Company came to Ray Corp., asking to order 10,000 units with slightly reduced functionality. The lower functionality would lower the DM cost to $4.00 per unit, but DL and OH costs would be the same as normal units. Because of the lower functionality, Johnson is requesting a lower price. As the production manager, what is the absolute lowest price per unit you would accept to make the deal? Provide calculations that support your answer and explain why. 2. The Special Olympics came to Ray Corp., asking to order 10,000 normal units engraved with the Special Olympics logo. The engraving would not affect normal DM cost, but would increase DL per unit to $6.00 and OH per unit to $4.00. Instead of paying full price, the Special Olympics is asking for the lowest price Ray Corp would accept to make the deal. As the production manager, what is the lowest price per unit you would accept to make the deal? Provide calculations that support your answer and explain why