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 Enviro at no cost. Enviro 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: Read the requirements2. Requirement 1. Assuming that Enviro 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 Enviro can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Enviro sell the land at the end of the project to achieve its target profit per ton? The life-cycle operating income Enviro wants to earn is . Now complete the projected life-cycle income statement to determine at what price Enviro 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 Enviro can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Enviro 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 Enviro's mark-up percentage in requirement 2. Determine the formula, then compute the mark-up percentage. (Round mark-up to the nearest whole percentage.) (1) ÷ (2) = Mark-up percentage ÷ = % Next, compute what Enviro'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.) ( (3) + (4) ) ÷ (5) = New total life-cycle cost ( + ) ÷ = Finally, how much would Enviro have to reduce its total project life-cycle cost? Enviro would have to reduce its total project life-cycle cost by to maintain the same mark-up percentage as in requirement 2. 1: Data Table Fixed Variable Months 1-24 Metal extraction and processing $2,000 per month $80 per ton Months 1-27 Rent on temporary buildings $1,000 per month - Administration $6,000 per month - Months 25-27 Clean-up $20,000 per month - Land restoration $23,000 total - Cost of selling land $80,000 total - 2: Requirements Ignore the time value of money. 1. Assuming that Enviroexpects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost? 2. Suppose Enviro can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Enviro sell the land at the end of the project to achieve its target profit per ton? 3. Now suppose Envirocan only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Enviro 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?

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 Enviro at no cost. Enviro 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: Read the requirements2. Requirement 1. Assuming that Enviro 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 Enviro can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Enviro sell the land at the end of the project to achieve its target profit per ton? The life-cycle operating income Enviro wants to earn is . Now complete the projected life-cycle income statement to determine at what price Enviro 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 Enviro can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Enviro 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 Enviro's mark-up percentage in requirement 2. Determine the formula, then compute the mark-up percentage. (Round mark-up to the nearest whole percentage.) (1) ÷ (2) = Mark-up percentage ÷ = % Next, compute what Enviro'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.) ( (3) + (4) ) ÷ (5) = New total life-cycle cost ( + ) ÷ = Finally, how much would Enviro have to reduce its total project life-cycle cost? Enviro would have to reduce its total project life-cycle cost by to maintain the same mark-up percentage as in requirement 2. 1: Data Table Fixed Variable Months 1-24 Metal extraction and processing $2,000 per month $80 per ton Months 1-27 Rent on temporary buildings $1,000 per month - Administration $6,000 per month - Months 25-27 Clean-up $20,000 per month - Land restoration $23,000 total - Cost of selling land $80,000 total - 2: Requirements Ignore the time value of money. 1. Assuming that Enviroexpects to salvage 70,000 tons of metal from the site, what is the total project life cycle cost? 2. Suppose Enviro can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must Enviro sell the land at the end of the project to achieve its target profit per ton? 3. Now suppose Envirocan only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Enviro 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Read the requirements2.

Requirement 1. Assuming that Enviro 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 Enviro can sell the metal for $110 per ton and wants to earn a profit (before taxes) of $30 per ton. At what price must

Enviro sell the land at the end of the project to achieve its target profit per ton?

The life-cycle operating income Enviro wants to earn is

Now complete the projected life-cycle income statement to determine at what price Enviro 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 Enviro can only sell the metal for $100 per ton and the land at $110,000 less than what you calculated in requirement 2. If Enviro 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 Enviro's mark-up percentage in requirement 2. Determine the formula, then compute the mark-up percentage. (Round mark-up to the nearest whole percentage.)

(1)

(2)

Mark-up percentage

Next, compute what Enviro'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.)

(	(3)	+	(4)	) ÷	(5)	=	New total life-cycle cost
(		+		) ÷		=

Finally, how much would Enviro have to reduce its total project life-cycle cost?

Enviro would have to reduce its total project life-cycle cost by		to maintain the same mark-up percentage
as in requirement 2.

1: Data Table

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

2: Requirements

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

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