Dorsal Ranch raises fish for sale in the restaurant industry. The company can obtain batches of

two million eggs from its supplier. Management is trying to decide whether to raise cod or salmon.

Cod eggs cost $$14,000$ per batch, while salmon eggs cost $ Dorsal Ranch raises fish for sale in the restaurant industry. The company can obtain batches of two million eggs from its supplier. Management is trying to decide whether to raise cod or salmon. Cod eggs cost $$14,000$ per batch, while salmon eggs cost $$18,000$ per batch. Due to differences in needs, only one species can be raised during a $52-$week period. With current facilities, approximately $15$ percent of cod eggs and $10$ percent of salmon eggs can be raised to maturity. Cod take approximately $40$ weeks to grow to a marketable size, while salmon take $50$ weeks. Salmon also require more care than cod. Each week, salmon require two water treatments and $35$ feedings. Each feeding costs $$400$ and each water treatment costs $$600.$ Cod require only $21$ feedings and a single water treatment. Heat and light regulation costs average $$300$ per week for either species. The company can sell cod for $$5$ apiece and salmon for $$9$ apiece. Annual fixed costs, regardless of which species is raised, total $$900,000.$

Instructions

a$.$Which species should Dorsal Ranch raise to earn the highest operating income for the year?

b$.$ Other than fixed costs, which factors or categories of costs seem to have the greatest influence on operating income?

c$.$ At the unit sales price computed in part a$,$ how many cods and salmons must the company raise and sell to break even? Assume all salable cods and salmon are sold.

Management is considering one of the following improvements each of which will cost an additional $$20,000$ for the year. Due to resource constraints only one will be implemented.

$1.$ Installing a new filtration system to improve water quality. This will increase the survival tos to $20$ percen fored and i pen et for salmer The ted fog water treatmentse by $$80$ weekly.

$2.$ Installing an environment regulation system that will reduce heating and lighting costs to $$250$ per week. The equipment will increase the survival rate for cod to $16$ percent and the survival rate for salmon to $11$ percent. This slight change in survival rates is not expected to increase either water changing requirements or feeding costs.

Note: For Plan #$1$: The feeding cost will increase by $$80$ per feeding, not per week.

Should either of the above investments be undertaken? If so$,$ which species should be raised? Show your supporting calculations for both plans.

Note: Display your supporting calculations and assumptions that you are using to complete this assignment.

Part A$)$ Which species should Dorsal Ranch raised to earn the highest operating income for the year?

Cod or Salmon

Number of salable fish

$*$ sale price

Total revenue

Variable costs:

Eggs

Feedings

Water treatments

Heating and lighting

Total variable costs

Total contribution margin

Fixed costs:

Operating income

Part B$)$ The most important factors in determining operating income are

Part C$)$ Cods: Contribution Margin $($in units$)$ and Break$-$Even Sales Volume $($in units$)$

Salmons: Contribution Margin $($in units$)$ and Break$-$Even Sales Volume $($in units$)$

Part D$)$ Management is considering one of the following improvements. each of which will cost an additional $$20,000$ for the ycar. Due to resource constraints, only one can be implemented.

$1.$ Installing a new filtration system to improve water quality. This will increase the survival rates to $20$ percent for cod and $14$ percent for salmon. The need for water treatments will

For Plan #$1$: The feeding cost will increase by $$80$ per feeding, not per week.

be reduced to one per week for salmon. Due to higher yields, feeding costs will increase by $580$ weekly.

$2.$ Installing an environment regulation system that will reduce heating and lighting costs to $$250$ per week. The equipment will increase the survival rate for cod to $16$ percent and the survival rate for salmon to $11$ percent. This slight change in survival rates is not expected to increase either water changing requirements or feeding costs.

Should either of the above investments be undertaken? If so$,$ which species should be raised? Show your supporting calculations for both plans.

Operating income with new filter material $($Plan $1)$:

Cod and Salmon

Number of salable fish

x sale price

Total revenue

Variable costs:

Eggs

Feedings

Water treatments

Heating and lighting

Total variable costs

Total contribution margin

Fixed costs:

Operating income

Operating income with new heating and lighting equipment: $($Plan $2)$

Cod and Salmon

Number of salable fish

$*$ sale price

Total revenue

Variable costs:

Eggs

Feedings

Water treatments

Heating and lighting

Total variable costs

Total contribution margin

Fixed costs:

Operating income

Provide your conclusive answers here:

Which plan that will be profitable?

Which species is more profitable under the new plan?