Consolidated Minerals (CM) owns the rights to extract minerals from beach sands on Fraser Island. CM has costs in threeareas:

(BELOW)

Each barge operates 25 days per month. The $150,000 monthly charge must be paid even if fewer than 100 tonnes are transported on any day and even if CM requires fewer than 25 days of barge transportation in that month. CM is currently mining 180 tonnes of beach sands per day for 25 days per month.

a.

Payment to a mining subcontractor who charges $80 per tonne of beach sand mined and returned to the beach(after being processed on the mainland to extract threeminerals: ilmenite,rutile, andzircon).

b.

Payment of a government mining and environmental tax of $50 per tonne of beach sand mined.

c.

Payment to a barge operator. This operator charges $150,000 per month to transport each batch of beach sandup to 100 tonnes per batch per dayto the mainland and then return to Fraser Island(that is, 0 to 100 tonnes per day= $150,000 permonth; 101 to 200 tonnes per day= $300,000 permonth, and soon).

Requirements

1.

What is the variable cost per tonne of beach sandmined? What is the fixed cost to CM permonth?

2.

Plot a graph of the variable costs and select the graph that shows the fixed costs of CM. Is the concept of relevant range applicable to yourgraphs? Explain.

3.

What is the unit cost per tonne of beach sand mined(a) if 180 tonnes are mined each day and(b) if 220 tonnes are mined eachday? Explain the difference in theunit-cost figures.