Exercise 4.25

The income statement for Bonita Salmon Sales, which produces smoked salmon, follows:

Revenue (91,500 lbs)$658,800ExpensesFish$192,150Smoking materials18,300Packaging materials27,450Labour (wages)274,500Administration128,100Sales commissions

9,150

Total expenses

649,650

Pretax income$

9,150

Assume that the administrative costs are fixed and that all the other costs are variable.

Your answer is correct.

Suppose the provincial government curtails fishing because of low fish counts. As a result, Bonita Salmon Sales can buy only 45,750 lbs of salmon this year. Assume that the selling price, the fixed costs, and the variable costs remain the same as last year. Using only quantitative information, should Bonita Salmon operate this year? Explain your answer, using calculations. (Hint:Before you begin, identify the type of non-routine operating decision, the decision options, and the relevant information for this decision.)(Round answer to 2 decimal places, e.g. 5.35.)

Contribution margin:$

per lb salmon

If the fixed costs can be avoided by not producing, the company

should not

should

produce this year.

If the fixed costs can not be avoided by not producing, the company

should

should not

produce this year.

SHOW SOLUTION

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Assume that Bonita Salmon can buy up to 62,960 lbs of fish at $2.10/lbs and that the remainder of the fixed and variable costs remain the same as last year. Also assume that the selling price remains the same as last year and that the market will purchase at least another 27,210 lbs of fish. If the managers of Bonita Salmon wish to sell more salmon, what should they be willing to pay to purchase more fish? (Hint:This type of decision is different from the one in the previous part. Before you begin, identify the type of non-routine decision, the decision options, and the relevant information for this decision.)(Round answer to 2 decimal places, e.g. 5.35.)

Willing to pay:$

per lb salmon