Metal extraction and processing ($80 per ton × 70,000 tons)
$5,600,000
Fixed costs:
Metal extraction and processing ($2,000 × 24 months)
48,000
Rent on temporary buildings ($1,000 × 27 months)
27,000
Administration ($6,000 × 27 months)
162,000
Clean-up ($20,000 × 3 months)
60,000
Land restoration
23,000
Selling land
80,000
Total life-cycle cost
$6,000,000
2
Projected Life Cycle Income Statement
Revenue ($110 per ton
70,000 tons)
$7,700,000
Sale of land (plug after inputting other numbers)
400,000
Total life-cycle cost
(6,000,000)
Life-cycle operating income ($30 per ton × 70,000 tons)
$2,100,000
Mark-up percentage on project life-cycle cost =
Life cycle operating income
Total life-cycle cost
$2,100,000
$6,000,000
=
= 35%
The company would have to sell the land for $400,000.
3.
Revenue ($100 per ton
70,000 tons)
$7,000,000
Sale of land
290,000
Total revenue
$7,290,000
Total life-cycle cost at mark-up of 35%
($7,290,000 ÷ 1.35)
$5,400,000
The company would need to reduce total life-cycle costs by
($6,000,000 – $5,400,000)
$ 600,000
Check
Revenue
$7,000,000
Sale of land
290,000
Total life-cycle cost
(5,400,000)
Life-cycle operating income
$1,890,000
Mark-up percentage =
$1,890,000
$5,400,000
= 35%