Problem B-5 Volume Trade-Off Decision; Managing the Constraint [LOB-2, LOB-3] 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 2,600 hours per year. Data concerning the company's four main products appear below. Products are sold by the pallet. Roman Brick Gross revenue per pallet Contribution margin per pallet Annual demand (pallets) Hours required in the kiln per pallet Traditional Brick $833 $520 100 10 Textured Facing $1,331 $ 620 120 10 Cinder Block $621 $396 110 4 $936 $480 100 6 No fixed costs could be avoided by modifying how much is produced of any product. Required: 1a. Calculate the total hours required in the kiln to satisfy demand for all products. Cinder Roman Total Block Brick Traditional Brick 10 100 1,000 Textured Facing 101 120 1,200 Hours required in the drying kiln per pallet Annual demand in pallets Total hours required in the drying kiln 4 6 110 100 600 440 3,240 1b. Is there sufficient capacity in the kiln to satisfy demand for all products? Yes 2a. Calculate the profitability index for the company's four products. Hours required in drying kiln per pallet Contribution margin per pallet Profitability index Traditional Textured Cinder Roman Brick Facing Block Brick $ 833 $ 1,331 $ 621 $ 936 520 620 480 2 $ 2 $ 2 $ 2 396 HA 2b. What is the production plan for the year that would maximize the company's profit? (Round answer to the nearest complete pallet (i.e., 12.3 pallets should be entered as 12.) Traditional Brick Textured Facing Cinder Block Roman Brick pallets pallets pallets pallets 3. What would be the total contribution margin for the production plan you have proposed? Textured Cinder Traditional Brick Roman Brick Facing Block Total $ 0 4. The kiln could be operated for more than 2,600 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 per hour 5. The company is considering introducing a new product, glazed Venetian bricks, whose variable cost would be $855 per pallet and that would require 8 hours in the kiln per pallet. What is the minimum acceptable selling price for this new product? Time required (hours) Selling price 2 $ 0 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? O Yes O No
