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.

Calculate the operating income from raising clownfish and angelfish.

Answer 1

Raising clownfish generates a positive operating income of $81,750, while raising angelfish results in a loss of $309,500. Considering the costs of eggs, feeding, water changes, and fixed costs, clownfish are the more profitable option for Percula Farms.

Step-by-step explanation:

Calculating the operating income for raising clownfish and angelfish at Percula Farms involves several steps. First, we need to identify the variables and calculate the revenue, costs, and ultimately the profit for each type of fish.

The success rates are 10% for clownfish and 5% for angelfish. This means that 100,000 clownfish and 50,000 angelfish reach maturity. The selling prices are $4 per clownfish and $10 per angelfish, resulting in revenues of $400,000 (clownfish) and $500,000 (angelfish).

The initial egg costs are $5,500 for clownfish and $9,500 for angelfish. Rearing costs include feedings and water changes. For clownfish, there are 35 weeks of care with one $1,000 water change and 15 feedings at $150 each, totaling $6,250 per week or $218,750 for 35 weeks. For angelfish, over 50 weeks, each week involves two $1,000 water changes and 20 feedings at $150 each, totaling $14,000 per week or $700,000 for 50 weeks. Both fishes have the same heating and lighting costs at $400 per week, totaling $14,000 (clownfish) and $20,000 (angelfish) respectively. Fixed overhead is $80,000 for both.

To calculate operating income, we subtract total costs from revenues. For clownfish, this is $400,000 - ($5,500 + $218,750 + $14,000 + $80,000) = $81,750. For angelfish, the calculation is $500,000 - ($9,500 + $700,000 + $20,000 + $80,000) = -$309,500. Therefore, the operating income for clownfish is positive, while for angelfish, the farm would operate at a significant loss.