Question

(Q.2) Consolidated Minerals (CM) owns the rights to extract minerals from beach sands on Fraser Island. CM has costs in three areas: i. Payment to a mining subcontractor who charges $80 per ton of beach sand mined and returned to the beach (after being processed on the mainland to extract three minerals: ilmenite, rutile, and zircon). ii. Payment of a government mining and environmental tax of $50 per ton of beach sand mined. iii. Payment to a barge operator. This operator charges $150,000 per month to transport each batch of beach sand-up to 100 tons per batch per day-to the mainland and then return to Fraser Island (that is, 0 to 100 tons per day $150,000 per month; 101 to 200 tons per day=$300,000 per month, and so on). Each barge operates 25 days per month. The $150,000 monthly charge must be paid even if fewer than 100 tons are transported on any day and even if CM requires fewer than 25 days of barge transportation in that month. CM is currently mining 180 tons of beach sands per day for 25 days per month. 1. What is the variable cost per ton of beach sand mined? What is the fixed cost to CM per month? Show/calculate below. Variable cost per ton of beach sand: Fixed cost per month: 2. Plot a graph of the variable costs and another graph of the fixed costs of CM. Comment on the concept of relevant range is relevant range applicable to your graphs? Explain shortly.) Variable cost graph Fixed cost graph Comment on the relevant range): 3. Calculate the unit cost per ton of beach sand mined ) if 180 tons are mined each day and (ii) if 220 tons are mined each day? Explain the difference in the unit-cost figures. (i) unit cost per ton if 180 tons are mined each day:

Answer 1

Variable Cost per ton of beach sand or Payment to subcontractor = Payment of Government tax = Total Variable cost per ton = $80 $50 $ 130 fixed cost per month :- Payment to barge operator = (because CM is currently mining 180 tons) of sand per day $3,00,000 o Q.2 Variable cost Graph a fixed cost Graph 390007 of 450,000 but fixed Cost (4) 3,00, anot Cost ($) 13000 , 150,000 100 200 300 loo doo 300 tons of beach sand n u ts roll tons of Beach sand Relevant range is the anticipated activity and at which you will perform. Cost behaviour changes because of change in fixed cost when volume increases to celtain point, mose fixed costs will have to be added. Yes, relevant sange concept is applicable to as fixed cost changes in response to mining of sands in terms of tous as depicted in graph.

hope you liked my answer and if you do don't forget to give a Thumb's up.??

Q.3 (i) Il 180 tons all mined each day :- output (tons) 180 Payment to contractor (180 x $80) 14,400 Payment to Govt. Taxes (180x850) 9,000 Payment to barge operator (3,00,000/25) 12,000 Total cost $35,400 unit cost per ton ($35,400/180) = $196,67 (ii) Il 220 tons all mined each day : - Output (tons ! 220 Payment to contractor (220 x $80) 17,600 Payment of Govermout Taxes ( 220x450) 11,000 Payment to Balge operator (450,000/25) 18,000 I Total cost $46,600 Unit cost pelton ($46, 600/220) = $211.82 Diffsence of $15.15 (211.82-196.67) in Unit cost is due to change in fixed cost as in s $300,000 are paid to operator while in () & 450,000 are paid.