Study Appendix 2B. Pacific Fish Company is a wholesale distributor of salmon. The company services grocery stores in the Chicago area.

Average selling price per pound ........ $ 5.00

Average variable costs per pound

Cost of salmon .............. $ 2.50

Shipping expenses ............. 0.50

Total ................... $3.00

Annual fixed costs

Selling ............... $ 210,000

Administrative .............. 356,250

Total ................ $ 566,250

Expected annual sales volume (390,000 p) . $1,950,000

Tax rate ................. 40%

Small but steady growth in sales has been achieved by Pacific Fish over the past few years, while salmon prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented next are the data used to project the current year’s after-tax net income of $128,250.

Fishing companies have announced that they will increase prices of their products by an average of 15% in the coming year, owing mainly to increases in labor costs. Pacific Fish Company expects that all other costs will remain at the same rates or levels as in the current year.

1. What is Pacific Fish Company’s break-even point in pounds of salmon for the current year?

2. What selling price per pound must Pacific Fish Company charge to cover the 15% increase in the cost of salmon and still maintain the current contribution-margin ratio?

3. What volume of sales in dollars must the Pacific Fish Company achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of salmon remains at $5 per pound and the cost of salmon increases 15%?

4. What strategies might Pacific Fish Company use to maintain the same net income after taxes as projected for the current year?