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Problem 19.3A (Algo) Target Costing (LO19-4, LO19-5) Meiger Mining, Inc., has just discovered two...

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Accounting

Problem 19.3A (Algo) Target Costing (LO19-4, LO19-5)
Meiger Mining, Inc., has just discovered two new mining sites for iron ore. Geologists and engineers have come up with the estimates
on the following page regarding costs and ore yields if the mines are opened.
Meiger's owners currently demand a return of 19 percent of the market price of iron ore.
Required:
a. If the current market price of iron ore is $8.35 per ton, what is Meiger's target cost per
b-1. Given the $8.35 market price, compute the total cost per ton for Site A and Site B if fixed overhead costs are assigned to products
on the basis of estimated tons of ore that can be extracted over the life of the mine.
b-2. Should either of the mines be opened?
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 market price, compute the total cost per ton for B.
c-2. Should Meiger install the conveyor and open Site B?
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