Sammamish Brick, Inc., manufactures bricks using clay deposits on the company’s

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 2,000 hours per year. Data concerning the company’s four main products appear below. Products are sold by the pallet.

      

        

         

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

      

The kiln could be operated for more than 2,000 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?

       

The company is considering introducing a new product, glazed Venetian bricks, whose variable cost would be $820 per pallet and that would require 10 hours in the kiln per pallet. What is the minimum acceptable selling price for this new product?

       

Salespersons are currently paid a commission of 5% of gross revenues. Will this motivate the salespersons to make the right choices concerning which products to sell most aggressively?

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 2,000 hours per year. Data concerning the company’s four main products appear below. Products are sold by the pallet.

Explanation / Answer

1 a.)   The total hours required in the kiln to satisfy demand for all products:-

= (90 * 8) + (110 * 8) + ( 100 * 4) + (120 * 5)

= 720 + 880 +400 +600

= 2600 Hours

1. b.) There is not sufficient capacity in the kiln to satisfy demand for all products as the available hours are only 2000 as compared to required hours of 2600.

2. b.)The production plan for the year that would maximize the company’s profit :-

   Step I :- Calculate contribution per hour and then assign rank from Highest to Lowest.

Contribution Per hour

= Contribution margin per pallet / Hours required in the kiln per pallet

472 /8

= 59

632/8

= 79

376/4

= 94

440 /5

= 88

Production Plan that would maximize profits :-

* Hours left for Traditional bricks = Available hours - Utilized hours

= 2000 - [ (100 *4) + ( 120 * 5) + ( 110 * 8) ]

= 2000 - 1880

= 120

   Hours required in the kiln per pallet ( Traditional Bricks) = 8

So, the units of Traditional bricks to be produced = 120 / 8 = 15 Units

3. Calculation of contribution margin for my production plan:-

Traditional Brick Texture Facing Cinder Block Roman Brick

Contribution Per hour

= Contribution margin per pallet / Hours required in the kiln per pallet

472 /8

= 59

632/8

= 79

376/4

= 94

440 /5

= 88

Ranking IV III I II

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