Hefty Inc. produces plastic storage containers. The company makes two sizes of containers: regular (55 gallons) and large

(100 gallons). The company uses the same machinery to produce both sizes. The machinery can be run for only 2,500

hours per month. Hefty can produce 20 regular containers every hour, whereas it can only produce 8 large containers in

the same amount of time. Fixed costs amount to $1,000,000 per month. Sales prices, variable costs, and monthly

demand are as follows:

Questions:

1) To maximize profits, how many of each size container should Hefty produce per month? Prepare an income

statement with this level of sales. What other strategies might Hefty consider (answer this question on the

conclusion tab).

2) Assume the company makes only the regular product. Hefty is a price taker. The market price for the

regular container recently dropped to $100 per container as there is a new low-cost online market entrant.

Hefty needs to earn the necessary income to satisfy its financial stakeholders. How much does Hefty need

to reduce costs to satisfy its required rate of return?

3) Hefty Inc. is deciding whether to outsource the production of a type of glue that is included in its containers.

Hefty currently makes 10,000 bottles of glue with a variable cost of $.90 per bottle. If Hefty Inc. outsources,

it can buy the glue ready-made for $1.20 per bottle and can shut down the production facilities it is currently

using to manufacture the glue, which cost $12,000 per year. What is the effect of outsourcing? What other

factors should Hefty consider (answer this question on the conclusion tab).

Per Unit Regular Large Sales price $105 $225 Variable costs 28 42 Demand 30,000 20,000 Total investment $150,000,000 Required rate of return 10% per year