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%

Assume the company makes only the regular product. Glad 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. Glad

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

reduce costs to satisfy its required rate of return?

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?