Question

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

$878,400 Revenue (109,800 lbs) Expenses Fish Smoking materials Packaging materials Labour (wages) Administration Sales commissions Total expenses Pretax income $ 230,580 21,960 32,940 318,420 142,740 10,980 757,620 $ 120,780 Assume that the administrative costs are fixed and that all the other costs are variable. Your answer is partially correct. Try again. Suppose the provincial government curtails fishing because of low fish counts. As a result, Ayayai Salmon Sales can buy only 54,900 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 Ayayai 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: 1.10 per Ib salmon If the fixed costs can be avoided by not producing, the company should not produce this year. If the fixed costs can not be avoided by not producing, the company T should produce this year. x Your answer is incorrect. Try again. Assume that Ayayai Salmon can buy up to 73,830 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 28,930 lbs of fish. If the managers of Ayayai 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.) x Willing to pay: 2.80 per Ib salmon

Answer 1

Particulars	Amount
Sales	878400
Less: variable cost
Fish	230580
Smoking Material	21960
Packaging materials	32940
Labour	318420
Sales commission	10980
Total variable cost	614880
Contribution Margin (sales - variable cost)	263520

Contribution Margin per unit = 263520/109800

= 2.4