Life-Cycle Costing

Doha Metal Recycling and Salvage (DMRS) is the premier recycling service provider, which located in Doha, Qatar. It specializes in offering high-end quality scrap trading services to customers from all over the world. By the beginning of the 2018, Mr. Fahed Al Shammari (the company’s president and chief owner) contacted the head of planning department Mr. Khaled Al Shammari about considering a salvage area outside Qatar. The following conversation emerged between them:

–         Mr. Fahed: Salam Alikum Mr. Khaled, I am looking forward to expand our operations outside Qatar, I believe that you have a salvage location in your mind in Oman, right?

–         Mr. Khaled: W Alikum Alsalam Mr. Fahed, yes we have been planning with the owners of an old industrial site in Oman during the year. Would you like to know the details?

–         Mr. Khaled: Yes please, go ahead with a brief about the project.

–         Mr. Fahed: First, the Omani Government will grant the site to our company at no cost. Second, we are planning to extract scrap metal at the site for 24 months. Third, we will clean up the site, return the land to useable condition and sell it to a developer. We may need 27 months in total to extract the scrap and sell the site to a developer.

–         Mr. Fahed: Thank you Mr. Khaled for the brief, please inform me about the expected costs.

–         Mr. Khaled: From month 1 to 24, we will have $2000 fixed costs per month and $80 per ton as variable costs; these costs classified as metal extraction and processing. While from month 25 to 27 we will have the following fixed costs: 

Clean-up                                         $20,000 per month

                               Land restoration                              $23,000 in total

                               Cost of selling land                         $80,000 in total

–         Mr. Fahed: Clear and concise information Mr. Khaled, since we will operate outside Qatar we may need to rent a building and some administration costs over the whole period, correct?

–         Mr. Khaled: Yes sir, over the 27 months we will rent a temporarily building that cost $1000 per month. In addition, we will have administrative costs of $6000 per month.

–         Mr. Fahed: Thank you Mr. Khaled, it seems you have prepared your plan very well as expected. Nevertheless, how many tons do you expect that we will extract from the site? How much the selling price per ton?

–         Mr. Khaled: Thank you Mr. Fahed for your trust in our department. We are expecting to extract 70,000 tons of metal from the site with a selling price of $110 per ton. We are looking forward to earn a profit (net income) of $30 per ton. Thus, we will need to manage the price (at the end of the project) of the site to the developer.

After reviewing the information mentioned above, discuss and (Use Excel for calculation requirements)

1.      In accordance to the conversation above, what is the total project life cycle cost?