Percula Farms raises marine fish for sale in the aquarium trade. Each year, Perc
ID: 2541430 • Letter: P
Question
Percula Farms raises marine fish for sale in the aquarium trade. Each year, Percula obtains a batch of approximately one million eggs from a local supplier. Percula’s manager is trying to decide whether to use the farm’s facilities to raise Maroon Clownfish or Queen Angelfish. Clownfish eggs cost $5,500 per batch, while angelfish eggs cost $9,500 per batch. Due to differences in needs, only one species may be raised at a time and only one batch of fish can be raised in any 52-week period.
With current facilities, approximately 10 percent of clownfish eggs and 5 percent of angelfish eggs can be successfully raised to maturity. Clownfish take approximately 35 weeks to grow to a salable size, while angelfish take 50 weeks. Angelfish also require more care than clownfish. Each week, angelfish need two complete water changes and 20 feedings, while clownfish need only one water change and 15 feedings. Each feeding costs $150 and each water change costs $1,000. Heating and lighting costs equal $400 per week of rearing, regardless of which type of fish is being raised. Fixed overhead costs for the year amount to $80,000. Percula can sell clownfish for $4 each and angelfish for $10 each.
Required:
a-1. Calculate the operating income from raising clownfish and angelfish.
a-2. Which species should Percula raise to earn the highest operating income for the year?
c. & d. Percula’s manager is considering the following improvements, each of which will cost an additional $8,000 for the year. Due to resource limitations, only one can be implemented.
1. Purchasing a higher quality filter material that will significantly improve water conditions in the rearing tanks. The higher water quality will increase the survival rates to 12 percent for clownfish and 6 percent for angelfish. The need for water changes will also be reduced to one each week for angelfish. Due to the higher yields, feeding costs will increase to $160 each.
2. Installing newer, more efficient equipment that will reduce heating and lighting costs to $300 per week of rearing. The new equipment will promote more stable conditions, increasing the survival rates of clownfish to 10.5 percent and of angelfish to 5.5 percent. The slight change in survival rates is not expected to increase feeding costs.
i. Calculate the operating income from raising clownfish and angelfish with new filter material.
ii. Calculate the operating income from raising clownfish and angelfish with new heating and lighting.
iii. Which option do you think will be more beneficial and which fish species should be raised?
Explanation / Answer
a.1 -Statement of Operating Income Amount in ($) Particulars Clown Fish Angel Fish Details Sales A 400,000 (1000,000Eggs*10% Production)*$4/per egg A 500,000 1000,000eggs*5% Production)*$10/per egg Less: Water Change Costs B 35,000 35weeks*1time*$1000 B 100,000 50weeks*2 times*$1000 Less: Feeding Costs C 78,750 35weeks*15feedings*$150 C 150,000 50weeks*20feedings*$150 Less: Heating & Lighting Costs D 14,000 35weeks*$400/per week D 20,000 50weeks*400/per week Total Operating Expenses E=(B+C+D) 127,750 E=(B+C+D) 270,000 Opetaing Income F=(A-E) 272,250 F=(A-E) 230,000 a-2:Advice: In Normal Situation Operating Income (excluding Fixed Expenses) is $272,250 for Clown Fish , $230,000 for Angel Fish. Hence raising Clown fish is more profitable than raising angel fish under this situation. C-Purchasing Higher Quality Filter Pariculars Clown Fish Angel Fish Details Sales A 480,000 (1,000,000 Eggs*12% Production)*$4/per Egg A 600,000 (1,000,000 Eggs*6% Production)*$10/per Egg Less: Water Change Costs B 35,000 35weeks*1time*$1000/per week B 50,000 50weeks*1times*$1000/per week Less: Feeding Costs C 84,000 35weeks*15feedings*$160/per week C 160,000 50weeks*20feedings*$160/per week Less: Heating & Lighting Costs D 14,000 35weeks*$400/per week D 20,000 50weeks*400/per week Total Operating Costs E=(B+C+D) 133,000 E=(B+C+D) 230,000 Operating Income F=(A-E) 347,000 F=(A-E) 370,000 AdditionalHifher Quality Filter Charges G 8,000 G 8,000 Net Operating Income H= (F-G) 339,000 H= (F-G) 362,000 Advice: Under this Situation Operating Income (excluding Fixed Expenses) is $339,000 for Clown Fish , $362,000 for Angel Fish. Hence raising Angel fish is more profitable than raising Clown Fish under this situation. D.Installing Newes More Efficient Equipment Pariculars Clown Fish Angel Fish Details Sales A 420,000 (1,000,000Eggs*10.5% Production)*$4/per Egg A 550,000 (1,000,000 Eggs*5.5% Production)*$10/per Egg Less: Water Change Costs B 35,000 35weeks*1time*$1000/per week B 50,000 50weeks*1times*$1000/per week Less: Feeding Costs C 84,000 35weeks*15feedings*$160/per week C 160,000 50weeks*20feedings*$160/per week Less: Heating & Lighting Costs D 10,500 35weeks*$300/per week D 15,000 50weeks*$300/per week Total Operating Costs E=(B+C+D) 129,500 E=(B+C+D) 225,000 Operating Income F=(A-E) 290,500 F=(A-E) 325,000 Additional Equipment Charges G 8,000 G 8,000 Net Operating Income H= (F-G) 282,500 H= (F-G) 317,000 Advice: Under this Situation Operating Income (excluding Fixed Expenses) is $282,500 for Clown Fish , $317,000 for Angel Fish. Hence raising Angel fish is more profitable than raising Clown Fish under this situation.
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