Question

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%

Consider each of the following INDEPENDENT scenarios:

1)      To maximize profits, how many of each size container should Glad produce? Prepare an income statement with this level of sales. What other strategies might Glad consider

Answer 1

	Regular	Large
Sales Per unit	$     105.00	$     225.00
Variable cost	$        28.00	$        42.00
Contribution	$        77.00	$     183.00
Per hour Production units	20.00	8.00
Per Hour Contribution Margin	$ 1,540.00	$ 1,464.00
Units	30,000.00	8,000.00

Income Statement
	Regular	Large	Total
Sales	$ 3,150,000.00	$ 1,800,000.00	$ 4,950,000.00
Variable cost	$      840,000.00	$      336,000.00	$ 1,176,000.00
Contribution Margin	$ 2,310,000.00	$ 1,464,000.00	$ 3,774,000.00
Fixed cost			$ 1,000,000.00
Net Income			$ 2,774,000.00