Johnson Company came to Ray Corp., asking to order 2,000 units with slightly reduced functionality. The lower functionality would lower the DM cost to $5.75 per unit, but DL and all OH costs would be the same as normal units (no additional fixed overhead is necessary to make these 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.
The Special Olympics came to Ray Corp., asking to order 4,000 normal units engraved with the Special Olympics logo. The engraving would not affect normal DM cost, but would increase DL per unit to $5.25 and VOH per unit to $8.00 (no additional fixed overhead is necessary to make these units). 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.