Glad Bags produces restaurant storage containers. The company makes two sizes of containers: regular (55 gallon) and large (100 gallon). The company uses the same machinery to produce both sizes. The machinery can be run for only 2,500 hours per period. Glad can produce 20 regular containers every hour, whereas it can produce 8 large containers in the same amount of time. Fixed costs amount to $1,000,000 per period. Sales prices and variable costs are as follows:

Per Unit	Regular	Large
Sales price	$105	$225
Variable costs	28	42
Demand	30,000	20,000

Total investment $12,500,000

Required rate of return 10%

Glad Products is deciding whether to outsource the production of a type of glue that is included in its containers. It currently costs Glad $.90 to make each bottle of glue in-house. If Glad Products outsources, it can buy the glue ready-made for $1.20 each and can shut down the production facilities it is currently using to manufacture the glue and save $10,000 a year in fixed costs. Glad currently allocates $50,000 in fixed costs to the glue. Annual requirement for the glue is 12,000 units. What is the effect of outsourcing? What other factors should Glad consider?

Answer rating: 100% (QA)

The effect of outsourcing the production of glue on Glad Products profits can be calculated as follows Current cost of producing glue inhouse 090 per ... View the full answer