Sininsky Mining, Inc., has just discovered two new mining sites for iron ore. Ge
ID: 2365429 • Letter: S
Question
Sininsky Mining, Inc., has just discovered two new mining sites for iron ore. Geologists and engineers have come up with the following estimates regarding costs and ore yields if the mines are opened: Site A Site B Variable extraction costs per ton $ 3.80 $ 4.00 Fixed costs over the life of the mine: Blasting $ 150,000 $ 185,000 Construction 225,000 240,000 Maintenance 25,000 20,000 Restoration costs 40,000 35,000 Total fixed costs $ 440,000 $ 480,000 Total tons of ore that can be extracted over the life of the mine: 200,000 160,000 Sininsky's owners currently demand a return of 20 percent of the market price of iron ore. a. If the current market price of iron ore is $8.44 per ton, what is Sininsky's target cost per ton? (Round your intermediate and final answer to 2 decimal places. Omit the "$" sign in your response.) Target cost $ b-1 Given the $8.44 market price, compute the total cost per ton for Site A and site B? (Omit the "$" sign in your response.) Total cost per ton Site A $ Site B $ b-2 Which of the mines, if any, should be opened? Neither Site A Site B Both c-1 The engineer working on Site B believes that if a custom conveyor system is installed, the variable extraction cost could be reduced to $3 per ton. The purchase price of the system is $25,000, but the costs to restore the site will increase to $45,000 if it is installed. Given the current $8.44 per ton market price, compute the new total cost per ton for Site B. (Round your intermediate and final answer to 2 decimal places. Omit the "$" sign in your response.) Total cost per ton Site B $ c-2 Should the custom conveyor system be purchased and installed? In other words, given the new total cost per ton, should Site B be opened? yes NoExplanation / Answer
Accounting 2 will be the death of me. After way too long, I figured out the solution though:A. They want 21% return on 8.39. The equation is (8.39) - (8.39*.21) = 6.63. They need to produce the product for $6.63 in order to get 21% return.B. Total costs are fixed & variable combined. This is simple. You take the total fixed/total tons or ore. Which for site A's case is 440,000/200,000 = 2.2. 2.2 is the number offixed costs. Then you add the vaiable at 3.8 & the total cost for site a is $6. Site B is the same thing; 480,000/160,000 = 3. 3+4 =$7.so site a = 6, site b = 7. Since we wanted $6.63 or less, site a is the only one worth opening.C. Look at the restoration cost (35,000). Since the new restoration will be 45,000, there is a $10,000 increase. Add that to the 25,000 it would cost to install the system and you get $35,000 of extra fixed cost to install this system. Run the numbers again like part b, adding 35,000 to fixed costs: (480,000 + 35,000) / 160,000 = 3.21875. Add the new variable cost (3) & your number is $6.22. Since part A wanted less than 6.63, & 6.22 is less than 6.63, it would be worth opening. please rate me..