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CORRESP
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Continental Materials
Corporation

200 South Wacker Drive, Suite
4000

Chicago, Illinois 60606

May 6, 2005

VIA EDGAR CORRESPONDENCE

Mr. John M.
Hartz

Senior
Assistant Chief Accountant

Securities and
Exchange Commission

450 Fifth
Street N.W.

Washington, D.C.  20549-0404

  Re:

  Continental
  Materials Corporation, File Number 1-3834

  Form 10-K
  for the year ended January 1, 2005

Dear Mr. Hartz:

We are writing
in response to your letter dated April 22, 2005, regarding Continental
Materials Corporation’s Annual Report on Form 10-K for the fiscal year ended January 1,
2005.

To facilitate
your review of our response, we are including your comments in boldface,
followed by our response.  Please note
that we intend to address all of the issues that are raised in all future
filings with the Commission beginning with the Form 10-Q to be filed for the
first quarter of 2005.

Management’s
Discussion and Analysis:

1.                                      The
MDA discussion of operations should focus on the operations of each reportable
segment.  We have read Note 11 and note, for example, the construction materials segment is
larger in terms of revenue and assets while the heating and air conditioning
segment has higher segment operating income.
Your revision should highlight, for example, return on assets, gross and
net income percentages, other significant differences in operating expenses and
similar segment differences.

RESPONSE: The Company acknowledges your comments and will endeavor to
address these issues and include responsive commentary in all future filings
with the Commission beginning with the Form 10-Q to be filed for the first
quarter of 2005.  Additional information
relating to each of the three years in the period ended January 1, 2005
follows:

  Fiscal year

  2004

  2003

  2002

  Revenues
  from external customers

  Heating and
  air conditioning

  $

  46,196

  $

  48,342

  $

  52,261

  Construction
  Materials

  80,398

  71,493

  75,892

  Segment
  operating income

  Heating and
  air conditioning

  $

  3,436

  $

  5,012

  $

  4,885

  Construction
  Materials

  2,817

  1,702

  3,839

  Segment
  assets

  Heating and
  air conditioning

  $

  29,008

  $

  27,829

  $

  28,731

  Construction
  Materials

  53,742

  49,063

  49,188

  Operating
  income as a percent of sales

  Heating and
  air conditioning

  7.4

  %

  10.4

  %

  9.3

  %

  Construction
  Materials

  3.5

  %

  2.4

  %

  5.1

  %

  Return on
  assets

  Heating and
  air conditioning

  11.8

  %

  18.1

  %

  17.0

  %

  Construction
  Materials

  5.2

  %

  3.5

  %

  7.8

  %

The heating and air conditioning segment’s return on sales, as compared
to the return in the construction materials segment, reflects both the higher
profit margin on wall furnaces and the depressed ready mix concrete prices in
the Denver market.  Sales levels of furnaces
were relatively constant throughout the three year period.  The decrease in operating income as a percent
of sales in 2004 in the heating and airconditioning segment was largely due to
increases in steel costs.  The Company
was unable to recover the full amount of the increases through sales price
increases.  In addition, an increase in
workers’ compensation claims and the $196,000 write-off of the remaining
inventories associated with a product manufactured at our Phoenix plant, eroded
operating income.

The heating and air conditioning segment has historically required a much
lower capital asset investment compared to the construction materials
segment.  The return on assets for the
heating and air conditioning segment therefore is generally higher.  The decline in the return in 2004 was the
result of the above noted increased costs that diminished operating income as
well as the effect of increased steel costs on the average value of inventories
carried during the latter part of the year.

Operating income is highly sensitive to sales volume in the
construction materials segment.  This
segment has historically required a large investment in capital assets
resulting in a large portion of its costs being relatively fixed in nature. Operating
income as a percent of sales generally increases and decreases in tandem with
sales.  However, the decrease in 2003 was
more pronounced than would generally be expected from the decrease in volume,
due to the depressed prices in the Denver market.  Over the three years in the period ended January 1,
2005, the ready mix concrete prices in the Denver market have declined despite
increases in fuel, cement and other costs.
This has resulted in a larger than normal decline in the operating
income ratio in 2003. The increase in operating income in 2004 was dampened as
sales prices further declined in the Denver market at the same time sales
volume increased.

2

As previously noted, the construction materials segment has
historically required a significant investment in capital assets.  Therefore the return on assets has been lower
in this segment than in the heating and air conditioning segment.  The variations in the returns on assets in the
construction materials segment for 2004, 2003 and 2002 are due to the same
reasons noted above.

2.                                      The
company should disclose their self-insurance risk retention level.

RESPONSE: The Company maintained insurance policies since March 31,
2003 with the following per incident deductibles (self-insurance risk retention
level) and policy limits:

  Deductible

  Policy Limits

  Product and
  general liability

  $

  250,000

  $

  5,000,000

  Workers’
  compensation

  350,000

  1,000,000

  Auto and
  truck liability

  100,000

  2,000,000

In addition, should our out-of-pocket payments for the three policies
exceed $3,400,000 in the aggregate, the deductibles are waived and the policies
pay all amounts up to the policy limits.
Should any, or all policy limits be exceeded, our umbrella policy covers
the next $25,000,000 of payouts.  We will
include such disclosure in all future filings.

3.                                      In
MDA the company should provide disclosure about the maximum and average amounts
of company borrowings outstanding during the year under the revolving credit
agreement.

RESPONSE: The maximum amount of Company borrowings outstanding during
the year under the revolving credit agreement was $4,600,000.  The average borrowings during the 2004 fiscal
year were $1,382,000. We will include such disclosure in all future filings.

4.                                      Information
provided in MDA should add to what is included in the notes to the financial
statements and not reiterate information from notes to the financial
statements, to provide meaningful disclosure with general emphasis on the
discussion and analysis of known trends, demands, commitments, events and
uncertainties, and specific disclosures about liquidity, capital resources and
critical accounting estimates.

RESPONSE: The Company has discussed known trends in product sales
during the year (seasonality) in the Marketing section of Item 1 on pages
2 and 3.  Inventory trends during the
year are discussed in the Manufacturing section of Item 1 on page 3.  The upward trend in reclamation expenditures
is also discussed in the Manufacturing section while the calculation of
the reserve for reclamation is described in the Liabilities section of
Critical Accounting Policies on page 14.
The high level of price competition is discussed with special note given
to the effect of prices in the Denver in the Operations discussion on page
12.  We note the increased prices for
steel, fuel and cement but do not believe that there is a consensus among
experts as to future prices of these items, and therefore, we have not discussed
a “trend” in these items.  The rate of

3

increase
in health care costs, noted as a problem during 2003, was noted as subsiding
during 2004.  We make no predictions on
future costs in this area as these costs are highly dependent upon industry
costs, our employees experience and the ability of the Company to offset future
cost increases by raising employees’ contributions to the plan.

The Company discusses its liquidity in the section titled
Financial Condition, Liquidity and Capital Resources.  The Company stated its sources of capital
noting, on page 11, that these current sources would be sufficient to cover
expected cash needs for the next twelve months.
The Company also noted that the proposed tender offer that was discussed
in Note 12 (a typographical error as the tender offer was described in Note
13), would be funded with additional borrowings under its Revolving Credit and
Term Loan Agreement (Agreement).  The
Note states that the Company had received a commitment from its lenders
regarding this increase.  Since filing
the Form 10-K, the Company has signed an amendment to the Agreement and filed the
amendment with the Commission on Form 8-K dated April 14, 2005.

The Company is not aware any other trends or demands or specific disclosures
about liquidity, capital resources or critical accounting estimates that should
be disclosed.  There are no commitments,
events, or uncertainties that Management is aware of that should be disclosed in
MDA.  The Company acknowledges your
comments and will endeavor to address these issues and include responsive
commentary in all future filings with the Commission beginning with the Form
10-Q to be filed for the first quarter of 2005

Shipping
and Handling Costs:

5.                                      The
company should provide its accounting policy disclosure for shipping and
handling costs as required by EITF 00-10.

RESPONSE: The Company adopted EITF 00-10 during its 2000 fiscal
year.  Revenues received for shipping and
handling are classified as “sales.”
Costs associated with shipping and handling are
classified as “cost of sales.”  The
Company will disclose this policy as part of the “Sales” section of Critical
Accounting Policies in MD&A in future filings with the Commission.

Goodwill:

6.                                      The
company should disclose the date or dates its selected for its annual review
for goodwill impairment.

RESPONSE: The Company annually reviews goodwill for possible impairment
as of the last day of its fiscal year.
To the extent that events occur, either involving the relevant Company
subsidiaries or in their industries, the Company revisits its assessment of the
recorded goodwill to determine if an impairment has occurred that should be
immediately recognized.

4

Balance
Sheet – Unpaid Claim Covered by Insurance:

7.                                      Please explain what caused the increase between January 3,
2004 and January 1, 2005 in the balances for “Receivables for insured
losses” and “Liability for unpaid claims covered by insurance” from $709,000 at
the earlier date to $4,466,000 at the later date.  It appears that the increase in the reserve
for self-insurance losses from $1,973,000 at the earlier date to $2,988,000 at
the later date is due primarily to the $900,000 adjustment mentioned above.

RESPONSE: The “Receivables for insured losses” and the related “Liability
for unpaid claims covered by insurance” increased from January 3, 2004 to January 1,
2005 primarily due to a settlement reached between our insurance carriers and
the injured party on March 9, 2005 related to a claim associated with a
2001 truck accident.  The settlement was
for $3,000,000 of which the self-insured portion was $100,000 (included in the
reserve for self-insured losses at both January 3, 2004 and January 1,
2005).  The plaintiff had not quantified
her claim prior to our filing the Form 10-K for the fiscal year ended January 3,
2004, therefore no amount had been accrued as of that date, other than our
$100,000 deductible as the Company was reasonably certain that her claim would
at least equal this amount.

Your speculation regarding the increase in the reserve for self-insured
losses is correct.  The increase was due
to the higher level of workers compensation losses incurred during 2004.  Please also see our responses to comments 13
and 14.

Note 5 –
Shareholders’ Equity, Accounting for Stock-Based Compensation:

8.                                      The
company is required to provide pro forma information required by SFAS 123.  We note the company has options for 73,400
common shares outstanding, that all options are fully vested and will expire on
September 25, 2005.  Please tell us
why the pro forma data is not included.

RESPONSE: The options for the 73,400 shares were issued in 1995 and
became exercisable in 1996.  The
following disclosure was made in our 1996 filing on Form 10-K.  (Please note that in 1999, the Company
instituted a 2 for 1 stock split.  The
shares and exercise prices discussed in the 1996 note below were not adjusted
for this split.)

“Under the Company’s Stock Option Plan (the
Plan) officers and key employees may be granted options to purchase the Company’s
common stock at option prices established by the Compensation Committee of the
Board of Directors provided the option price is no less than the fair market
value at the date of the grant.  The
Company has reserved 180,000 shares for distribution under the Plan.  On September 26, 1995, a total of 78,000
options were granted to five individuals at an exercise price of $13.125.  These shares become exercisable when the
Company’s stock price rises to 133% of the price at the time of issuance
($17.50) and remains at or above this level for a period of 30 consecutive
trading days.  This condition was met
during 1996 and thus all of the 78,000 shares became exercisable.”

5

“These 78,000 options represent the only
grant under the Company’s Plan during the three years ended December 28,
1996.  The full 78,000 options remain
outstanding as of December 28, 1996 as none were exercised or lapsed
during the period.  The outstanding
options expire on September 25, 2005 and there were no options outstanding
related to the predecessor plan during the periods.”

“The Company applies Accounting Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees,” and related interpretations in accounting for
its Plan.  Accordingly, no compensation
expense has been recognized for its stock-based compensation Plan.  Had compensation cost for the Company’s Plan
been determined based upon the fair value at the grant date for these awards
consistent with the methodology proscribed under SFAS No. 123, “Accounting for
Stock-Based Compensation,” the Company’s net income and earnings per share
would have been reduced by approximately $201,000, or $0.18 per share and
$50,000, or $0.04 per share for 1996 and 1995 respectively.  The fair value of the options granted during
1995 is estimated as $5.00 on the date of the grant using the Black-Sholes
option-pricing model with the following assumptions:  dividend yield 0%, volatility of 30%, risk-free
interest rate of 6.05%, and an expected life of five years.”

There have been no grants of stock options since 1995.  Since the stock options were fully vested in
years prior to those included in the Form 10-K filed for fiscal year 2004, no
pro-forma information was included.

Note 9 –
Income Taxes:

9.                                      Please
explain to us what the “(Release) build tax contingency reserve” represents,
and explain the year-to-year changes in each year reported.

RESPONSE: The Company annually reviews its potential liability for income
tax contingencies resulting from positions taken on certain items of income or
deduction when filing its federal and state income tax returns.  Amounts are accrued based upon Management’s
assessment of the exposure on these items.
Conversely, such previously accrued amounts are reversed either when the
items are resolved in favor of the Company or the audit perio