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

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

Required:

1.  Is there sufficient capacity in the kiln to satisfy demand for all products?

2. What is the production plan for the year that would maximize the company’s profit?

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

4.      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?

5.      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?

6.      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?

Transcribed Image Text:

Traditional Textured Cinder Roman Brick Facing Brick Block Gross revenue per pallet Contribution margin per pallet Annual demand (pallets) Hours required in the kiln per pallet S857 S756 $472 $1,356 $632 $589 $376 $440 100 120 90 110 4 5