Data table Variable $80 per ton Months 1-24 Metal extraction and processing Months 1-27 Rent on temporary buildings Administration Months 25-27 Clean-up Land restoration Cost of selling land Fixed $2,000 per month $1,000 per month $6,000 per month $20,000 per month $23,000 total $80,000 total Extra Life Metal Recycling and Salvage receives the opportunity to salvage scrap metal and other materials from an old industrial site. The current owners of the site will sign over the site to Extra Life at no cost. Extra Life intends to extract scrap metal at the site for 24 months, and then will clean up the site, return the land to useable condition, and sell it to a developer. Projected costs associated with the project follow: Click the icon to view the project costs.) Read the requirements ... Requirement 1. Assuming that Extra Life expects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost? Total Life-Cycle Costs Variable costs: Metal extraction and processing Fixed costs: Metal extraction and processing Rent on temporary buildings Administration Clean-up Land restoration Selling land Total life-cycle cost Requirement 2. Suppose Extra Life can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Extra Life sell the land at the end of the project to achieve its target profit per ton? The life-cycle operating income Extra Life wants to earn is Now complete the projected life-cycle income statement to determine at what price Extra Life must sell the land at the end of the project to achieve its target profit per ton. Projected Life Cycle Income Statement Revenue Sale of land Total life-cycle cost Life-cycle operating income Requirement 3. Now suppose Extra Life can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Extra Life wanted to maintain the same markup percentage on total project life-cycle cost as in requirement 2, by how much would the company have to reduce its total project life-cycle cost? First, compute Extra Life's mark-up percentage in requirement 2. Determine the formula, then compute the mark-up percentage. (Round mark-up to the nearest whole percentage.) = Mark-up percentage = % Next, compute what Extra Life's new cost will have to be. Determine the formula, then compute the revised total life-cycle cost. (Enter any ratios up to two decimals, X.XX. Round the new cost to the nearest dollar.) New total life-cycle cost Finally, how much would Extra Life have to reduce its total project life-cycle cost? to maintain the same mark-up percentage Extra Life would have to reduce its total project life-cycle cost by as in requirement 2
