Determine the opportunity cost between the alternatives ANNUAL REVENUE PRIOR TO THE FIRE REVENUE $ $ $

Determine the opportunity cost between the alternatives

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ANNUAL REVENUE PRIOR TO THE FIRE REVENUE $ $ $ $ $ Less: Cost of goods sold Gross margin Less: Operating expenses NET INCOME (EBIT) GROSS MARGIN % NET MARGIN % Note: Total expenses = Cost of goods sold assumed to be variable @ 70% of revenue + Operating expenses assumed to be fixed = $10,622,822 + $2,293,993 = $ 12,916,815 2 CONTINUE PRODUCTION OFF SITE BY LEASING NEIGHBORING FACILITY ALTERNATIVES 1 STOP ALL PRODUCTION AND BUILD BACK THE MILL USING INSURANCE PAYOUT of $1 MILLION. Time to rebuild: 1 year Expected revenue after rebuild estimated @55% of pre fire revenue BENEFITS 15,175,460 Sale of lumber and wood chips 10,622,822 Material and wages @70% of revenue 4,552,638 At 30% of revenue Less: Operating expenses with lease Lease of space Lease of machinary Insurance equipment damage Transportation REVENUE Less: Cost of goods sold @70% (Material and wages) GROSS MARGIN @30% TOTAL OPERATING EXPENSES 2,293,993 Selling, general and admin expenses 2,258,645 EBIT Earnings before interest and tax 30% Gross margin/Revenue 14.9% Net income/Revenue NET INCOME (EBIT) $25 per sq ft for 10000 sq ft per month $10,000 per month $15,000 per month $12,000 per month Expected revenue after rebuild estimated @ 80% of pre fire revenue $ $ ssss $ $ $ $ $ $ $ 7,739,485 5,417,639 2,321,845 3,000,000 120,000 180,000 144,000 3,444,000 (1,122,155) ANNUAL REVENUE PRIOR TO THE FIRE REVENUE $ $ $ $ $ Less: Cost of goods sold Gross margin Less: Operating expenses NET INCOME (EBIT) GROSS MARGIN % NET MARGIN % Note: Total expenses = Cost of goods sold assumed to be variable @ 70% of revenue + Operating expenses assumed to be fixed = $10,622,822 + $2,293,993 = $ 12,916,815 2 CONTINUE PRODUCTION OFF SITE BY LEASING NEIGHBORING FACILITY ALTERNATIVES 1 STOP ALL PRODUCTION AND BUILD BACK THE MILL USING INSURANCE PAYOUT of $1 MILLION. Time to rebuild: 1 year Expected revenue after rebuild estimated @55% of pre fire revenue BENEFITS 15,175,460 Sale of lumber and wood chips 10,622,822 Material and wages @70% of revenue 4,552,638 At 30% of revenue Less: Operating expenses with lease Lease of space Lease of machinary Insurance equipment damage Transportation REVENUE Less: Cost of goods sold @70% (Material and wages) GROSS MARGIN @30% TOTAL OPERATING EXPENSES 2,293,993 Selling, general and admin expenses 2,258,645 EBIT Earnings before interest and tax 30% Gross margin/Revenue 14.9% Net income/Revenue NET INCOME (EBIT) $25 per sq ft for 10000 sq ft per month $10,000 per month $15,000 per month $12,000 per month Expected revenue after rebuild estimated @ 80% of pre fire revenue $ $ ssss $ $ $ $ $ $ $ 7,739,485 5,417,639 2,321,845 3,000,000 120,000 180,000 144,000 3,444,000 (1,122,155)

Answer rating: 100% (QA)

To determine the opportunity cost between the two alternatives we need to compare the net incomes that would result from each choice over the same tim... View the full answer