The income statement for King Salmon Sales, which produces smoked salmon, follows:
Assume that the administrative costs are fi xed and that all the other costs are variable.
REQUIRED
A. Suppose the provincial government curtails fishing because of low fish counts. As a result, King Salmon Sales can buy only 50,000 kg of salmon this year. Assume that the selling price, the fi xed costs, and the variable costs remain the same as last year. Using only quantitative information, should King Salmon operate this year? Explain your answer, using calculations.
B. Assume that King Salmon can buy up to 70,000 kg of fish at $2.00/kg 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 30,000 kg of fish. If the managers of King Salmon wish to sell more salmon, what should they be willing to pay to purchase more fish?
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