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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 281,45645%630,296occurs 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 CostsVariable costs:Metal extraction and processing ($80 per ton × 70,000 tons)$5,600,000Fixed costs:Metal extraction and processing ($2,000 × 24 months)48,000Rent on temporary buildings ($1,000 × 27 months)27,000Administration ($6,000 × 27 months)162,000Clean-up ($20,000 × 3 months)60,000Land restoration23,000Selling land80,000Total life-cycle cost$6,000,0002. Projected Life Cycle Income StatementRevenue ($110 per ton 70,000 tons)$7,700,000Sale of land (plug after inputting other numbers)400,000Total life-cycle cost(6,000,000)Life-cycle operating income ($30 per ton × 70,000 tons)$2,100,000Mark-up percentage on project life-cycle cost = Life cycle operating incomeTotal 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)$7,000,000Sale of land 290,000Total revenue$7,290,000Total life-cycle cost at mark-up of 35%($7,290,000 ÷ 1.35)$5,400,000The company would need to reduce total life-cycle costs by ($6,000,000 – $5,400,000)$ 600,000CheckRevenue$7,000,000Sale of land290,000Total life-cycle cost(5,400,000)Life-cycle operating income$1,890,00013-7