4 to stay competitive quick test needs to be more

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4. To stay competitive, Quick Test needs to be more efficient in arctic testing. Roughly 45% of 13-5
arctic testing’s total cost 281,456 45% 630,296 occurs in setups and facility costs. Perhaps the setup activity can be redesigned to achieve cost savings. Quick Test should also look for savings in the labor and supervision cost per test-hour and the total number of test-hours used in arctic testing, as well as the utility cost per machine-hour and the total number of machine hours used in arctic testing. This may require redesigning the test, redesigning processes, and achieving efficiency and productivity improvements. 13-6
13-32 (25–30 min.) Life-cycle costing. 1. Total Project Life-Cycle Costs Variable costs: 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 13-7
Mark-up percentage = $1,890,000 $5,400,000 = 35% 13-8

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