Question

Sammamish Brick, Inc., manufactures bricks using clay deposits on the company’s property. Raw clays are blended and then extruded into molds to form unfired bricks. The unfired bricks are then stacked onto movable metal platforms and rolled into the kiln where they are fired until dry. The dried bricks are then packaged and shipped to retail outlets and contractors. The bottleneck in the production process is the kiln, which is available for 4,250 hours per year. Data concerning the company’s four main products appear below. Products are sold by the pallet.

	Traditional Brick	Textured Facing	Cinder Block	Roman Brick
Gross revenue per pallet	$913	$1,418	$1,000	$1,095
Contribution margin per pallet	$570	$  660	$590	$560
Annual demand (pallets)	105	125	115	165
Hours required in the kiln per pallet	15	15	5	8

No fixed costs could be avoided by modifying how much is produced of any product.

3. What would be the total contribution margin for the production plan you have proposed?

Traditional Brick Textured Facing Cinder Block Roman Brick

? ? ? ? ?

Optimal Production Plan ? ? ? ?

Total Contribution Margin ? ? ? ?

4. The kiln could be operated for more than 4,250 hours per year by running it after normal working hours. Up to how much per hour should the company be willing to pay in overtime wages, energy costs, and other incremental costs to operate the kiln additional hours?

Maximum Amount to Operate the Kiln ?

5. The company is considering introducing a new product, glazed Venetian bricks, whose variable cost would be $925 per pallet and that would require 6 hours in the kiln per pallet. What is the minimum acceptable selling price for this new product?

Answer 1

Answer is given below