Soda Bottling, Inc., currently bottles its own soda drinks. Management is interested in outsourcing the production of bottles to a reputable manufacturing company that can supply the bottles for $0.04 each. Soda Bottling incurs the following monthly production costs to produce 1,000,000 bottles internally.

If production is outsourced, all variable production costs and 70 percent of fixed production costs will be eliminated.

Required:

1. Perform differential analysis using the format presented in Figure 4.2 Make-or-Buy Differential Analysis for Best Boards, Inc.. Assume making the product internally is Alternative 1, and buying the product from an outside manufacturer is Alternative 2.

2. Which alternative is best? Explain.

3. Summarize the result of outsourcing production using the format presented in Figure 4.3 Summary of Differential Analysis for Best Boards, Inc..

4. Assume all the facts of this problem remain the same. However, management of Soda Bottling has an opportunity to lease the space it currently uses to produce bottles for $6,000 per month if production of bottles is outsourced. Use the format presented in Figure 4.3 Summary of Differential Analysis for Best Boards, Inc. to determine if Soda Bottling would be better off outsourcing production. (Hint: $6,000 will appear in the analysis as an opportunity cost similar to Figure 4.7 Differential Analysis with Opportunity Cost for Barbeque Company.)

5. Identify at least one qualitative factor that should be considered before management decides to outsource production.