Life-cycle costing. Maximum 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 Maximum at no cost. Maximum 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:Ignore time value of money.Assuming that Maximum expects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost?Suppose Maximum can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Maximum sell the land at the end of the project to achieve its target profit per ton?Now suppose Maximum can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Maximum 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? FixedVariableMetal extraction and processingRent on temporary buildings$2,000 per month$1,000 per month$6,000 per month$20,000 per month$23,000 total$80 per tonMonths 1-24Months 1-27AdministrationMonths 25-27Clean-upLand restoration$80,000 totalCost of selling land

1.Calculate total project life cycle cost.

Answered: Fixed Variable Metal extraction and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Life-cycle costing. Maximum 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 Maximum at no cost. Maximum 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:

Ignore time value of money.

Assuming that Maximum expects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost?
Suppose Maximum can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Maximum sell the land at the end of the project to achieve its target profit per ton?
Now suppose Maximum can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Maximum 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?

Fixed
Variable
Metal extraction and processing
Rent on temporary buildings
$2,000 per month
$1,000 per month
$6,000 per month
$20,000 per month
$23,000 total
$80 per ton
Months 1-24
Months 1-27
Administration
Months 25-27
Clean-up
Land restoration
$80,000 total
Cost of selling land

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