Cleaning in-house versus outsourcing the cleaning

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A small brewery reuses its own empty bottles, but it does not have a bottle-cleaning machine. A delivery truck collects the empty bottles from liquor stores and bars and brings them back to the brewery. Once enough empty bottles accumulate, the truck transports them to a cleaning facility and brings back clean bottles. The cleaning facility charges 11 cents to wash a bottle, and cost of trucking is 2 cents per bottle. Management is thinking of buying an automated bottle-cleaning machine. The machine costs $1.5 million and has a useful life of 10 years. The brewery will use the machine only when enough empty bottles accumulate. The operating cost of the machine will be $108 per hour, and it can wash 60 bottles per minute. (Show your calculations)

1. How many bottles per year would have equal total annual cost of doing the cleaning in-house versus outsourcing the cleaning? Use straight-line depreciation.

2. What is the total annual cost at the quantity found in part 1?

3. Draw the two total annual costs vs. the quantity of bottles per year. Make sure that the y axis is to scale. If the brewery is expected to have 1 million bottles per year to wash, which decision is less costly and why?

Reference no: EM132286004

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