DELTA SALT MINING COMPANY VS. DEXTER MANUFACTURING For the past 30 years, the Delta Salt Mining Company (Delta) has been profitably extracting salt from the hills and the basin surrounding the Great Salt Lake, located about one driving hour west of Salt Lake City, Utah. Recently, Dexter Manufacturing (Dexter) entered into a three-year contract with Delta to build and be the exclusive supplier of heavy-duty product conveyor belt systems for Deltas mining operations. The conveyor belt systems are used to move mined salt from the working surfaces to the crusher rooms, where it is crushed and sifted into various sizes and grades of marketable salt. Additional conveyor belt systems are used to send the crushed and graded salt to shipping areas above ground. Until this contract, Delta purchased conveyor belt systems from several different suppliers. Delta agreed to the contract with Dexter to ensure a stable supply of product conveyor belts at a reasonable and constant price for three years. During the first 15 months of the contract, Dexter supplied $2.7 million of conveyor belt systems to Delta at the agreed-upon price. However, at this point, Dexter approached Delta with a proposition to raise the price of conveyor belt systems by 15% for the remaining 21 months of the contract. Dexter claimed that during the first 15 months of the contract it had lost 10% on the $2.7 million of conveyor belt systems supplied to Delta. Dexter further stated that it would be happy to continue with the contract if the company could earn just 5% on the remaining contract sales. Understandably, Delta management is not pleased with Dexters proposal and is considering civil litigation to force Dexter to honor the remaining terms of the contract or pay the damages caused by the breach of contract. To get some idea about the relevant issues and costs associated with civil litigation, Deltas management committee has engaged you, who is Certified in Financial Forensics and a graduate of Georgia Southern Universitys highly-regarded forensic accounting program, to provide litigation support in connection with this contract dispute. Since Delta management has no experience with civil litigation, the Committee solicits your input regarding the following questions/issues: Required Questions: 1. How much economic losses would Delta incur as a result of Dexters breach of contract? Be sure to clearly show all computations and state all assumptions upon which your estimate is based. 2. Assume that Delta could purchase the conveyor belt systems during the remaining 21 months of the contract period from alternative suppliers for $4 million, would that impact your estimate of Deltas losses? Explain and defend. 3. (a) Based on Dexters claim that it lost 10%1 on the sales of conveyor belts sold during the first 15 months of the contract, how much in total losses would Dexter incur if it honored the 36-month contract? Be sure to clearly show all computations and state all assumptions upon which your estimate is based. Is this information relevant to the dispute? Explain and defend. (b) Assume that Dexters incremental costsincluding both variable and fixed costsof providing the conveyor belts to Delta for the duration of the 36 months total $5.5 million. Is this information relevant to the dispute? Explain and defend. 4. (a) What additional costsother than the losses referred to in #1 aboveshould Delta management consider before moving forward with the litigation against Dexter? (b) Assume that Deltas attorneys estimate the cost of litigation against Dexter to be $600,000. Would you advise Delta to move forward with the litigation? Explain and defend. Assume that Dexter Manufacturing estimates losses based on full (a.k.a. absorption) costing.