Gulf Coast Shrimp Company is a small company. It owns an icehouse and processing building, a refrigerated van, and three shrimp boats. Bob Jones inherited the company from his father three months ago. The company employs three boat crews of four people each and five processing workers. Trey Goodfellow of Bayou Accountants, a local accounting firm, has kept the company’s financial records for many years. In his last analysis of operations, Goodfellow stated that the company’s fixed cost base of $100,000 is satisfactory for its type and size of business. However, variable costs have averaged 70 percent of sales over the last two years, which is too high for the volume of business. Last year, only 30 percent of the sales revenue of $300,000 contributed to covering fixed costs. As a result, the company reported a $10,000 operating loss.

Jones wants to improve the company’s net income, but he is confused by Goodfellow’s explanation of the fixed and variable costs. Prepare a response to Jones from Good fellow in which you explain the concept of cost behavior as it relates to Gulf Coast’s operations. Include ideas for improving the company’s net income based on changes in fixed and variable costs.