1) ToxicsRUs (Toxics) entered into a contract with Mooncor to clean up a decommissioned bitumen refinery near Fort McMurray, Alberta. Toxics intends to recycle scrap metal and clean up the site over an projected 364 day period. If the recycling, clean up, and de-toxifying activities are judged acceptable by the government, Mooncor will sell the land to Toxics for $500,000. Mooncor originally purchased the land for $1.5 million (M). If the site is successfully cleaned up, it has an estimated resale value of $5.5M. Trucking costs to haul away the scrap metal is estimated at $1.20 per tonne per loaded kilometer. The scrap yard is 100 kms. from the industrial site. Each truck can carry 10 tonnes of scrap.
100 full-time workers will be needed for the project. They will be paid an average hourly wage of $40 plus benefits totaling 25% of the hourly wage. The standard work period is seven days on followed by seven days off. There will be two shifts of workers. One shift will work from 6 AM to 6 PM; the other will work from 6 PM to 6 AM. Food and accommodation for each on-duty worker will cost $1,000 per week. Costs to lease a bus to transport the workers from camp to the industrial site will be $400 per round trip. Two round bus trips are needed to transport the workers each day. Equipment will be leased for $2M over the life of the project, including maintenance and repairs. Fuel and other supplies are estimated at $400,000 in total. Temporary leased buildings used at the site will cost $200,000 in total.
An estimated one million cubic metres of contaminated soil will need to be processed at a cost of $10 per cubic metre. These costs exclude those listed above.
Required:
a. Calculate the project's estimated revenues and costs. Assume the land will be transferred to Toxics at the end of the project for $500,000 and immediately resold at the estimated fair market value. Ignore revenues and expenses related to the sale of scrap metal.
b. How many tonnes of scrap metal will need to be recovered for Toxics to earn a profit of $1.25M, if scrap can be sold for $220 per tonne?
c. Ignore your answer to part b. Assume that 400,000 tonnes of scrap metal will be recycled. What is the lowest price per tonne of scrap metal that Toxics can receive for the project to break even?
2. Dudley Industries developed the following standard costs for direct materials and direct labor to produce gadgets:
Standard quantity Standard price
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Standard quantity
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Standard price
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Direct materials
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0.60 pounds
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$25 per pound
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Direct labor
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0.20 hours
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$18 per hour
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During October, Dudley produced and sold 8,000 gadgets using 5,000 pounds of direct materials at an average cost per pound of $22.50, and 1,560 direct labor hours at an average wage of $18.20 per hour.
Required: What is the direct material quantity variance for October and what is a plausible cause of this variance?