One method for developing a mine containing an estimated 100,000 tons of ore wil

Question

One method for developing a mine containing an estimated 100,000 tons of ore will result in the recovery of 60% of the available ore deposit and will cost $23 per ton of material removed. A second method of development will recover only 53% of the ore deposit, but it will cost only $15 per ton of material removed. Subsequent processing of the removed ore recovers 300 pounds of metal from each ton of processed ore and costs $45 per ton of ore processed. The recovered metal can be sold for $0.84 per pound. You can sell all the metal that is recovered. Which method for developing the mine should be used if your objective is to maximize total profit from the mine? The profit from the mine using the first method is S(Round to the nearest dollar.)

Explanation / Answer

First method:

Recovered Ore = 60% of 100,000 = 0.60*100,000 =60,000tons

Removal cost = 60,000*($23) = $1,380,000

Processing cost = 60,000*($45) = $ 2,700,000

Recovered metal = (300 lbs/ton)*60,000 tons = 18,000,000 lbs

Revenue = 18,000,000* $0.84 = $15,120,000

Profit = Revenue - Cost

Profit = 15,120,000 - 1,380,000 - 2,700,000 = $11,040,000.

So profit from the mine using first method is $11,040,000

For second method:

Recovered Ore = 53% of 100,000 = 0.53*100,000 =53,000tons

Removal cost = 53,000*($15) = $795,000

Processing cost = 53,000*($45) = $ 2,385,000

Recovered metal = (300 lbs/ton)*53,000 tons = 15,900,000 lbs

Revenue = 15,900,000* $0.84 = $13,356,000

Profit = Revenue - Cost

Profit = 13,356,000 - 795,000 - 2,385,000 = $10,176,000.

So profit from the mine using first method is $10,176,000

So Method 1 should be used for developing the mine if we want to maximize total profit from the mine because profit from method 1 is greater than profit from method 2

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