Question

Exercise 4.25 The income statement for Cheyenne Salmon Sales, which produces smoked salmon, follows: Revenue (106,200 lbs) $ 870,840 Expenses Fish $ 180,540 Smoking materials 21,240 Packaging materials 31,860 Labour (wages) 350,460 Administration 159,300 Sales commissions 10,620 Total expenses 754,020 Pretax income $116,820 Assume that the administrative costs are fixed and that all the other costs are variable. Suppose the provincial government curtails fishing because of low fish counts. As a result, Cheyenne Salmon Sales can buy only 53,100 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 Cheyenne 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 produce this year. If the fixed costs can not be avoided by not producing, the company produce this year. Assume that Cheyenne Salmon can buy up to 74,830 lbs of fish at $1.70/1bs 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 31,730 lbs of fish. If the managers of Cheyenne 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

Answer 1

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Solution Date Answer il contribution margin $2.6 per lb Salmon 8.2 Explanations Fixed costs ladmin.Cost ingiven (ose) come not Considered to calculate contribution mangin Selling price perunit (8 10,8610/106,000 lbs) Variable Cast Fish (180,540/106,200) (107) Smoking materials (21,240/104200) (0.2) Packaging materials (31860/106,200) (0.3) Labows 9350,460 Llob,200) Sales Commission (10,620/106200) Variable cost per unit (5.6) Contribution Margin. $2.6. Total fined cost given = $ 159,300 The total contribution margin that cheyenne Salmon can earn by selling $53, loolbs = *26*53,100lbs. = $138,060 Scanned by TapScanner

Date Decision, if the given fixed cost is avoidkeble in nature Then cheyenne Salmon Ahould not operate produce this year. However if the fixed cost in unvoidable in hatwie the cheyenne Salmon should operate / Produce this year in order to earn the contribution margin far minimizing the overall lass from & $ 159,300 to 21,240 ( 159,300 - 138,060). Answer 2. willing to pay $4.3 per Ib Salmon. Explanation: If the demand , Selling, price e cost elements in the future are not affected as per the general rule, the managers are pay the current Variable cost per unit cost + + contribution margin per conuit 26' Aalmon. = $ 1.70 +2.6 = $4,3 che willing Scanned by TapScanner