Question
Antioch Extraction, which mines ore in Montana, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December,
Antioch Extraction, which mines ore in Montana, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December, the low point of activity, when 1,150 tons of ore were extracted:
Straight-line depreciation$24,500
Charitable contributions*6,500
Mining labor/fringe benefits172,500
Royalties150,250
Trucking and hauling177,205
*Incurred only in December.
Peak activity of 2,450 tons occurred in June, resulting in mining labor/fringe benefit costs of $367,500, royalties of $286,750, and trucking and hauling outlays of $222,205. The trucking and hauling outlays exhibit the following behavior:
Less than 1,150 tons$154,705
From 1,150-1,649 tons177,205
From 1,650-2,149 tons199,705
From 2,150-2,649 tons222,205
Antioch uses the high-low method to analyze costs.
a)Calculate the total cost for next February when 1,450 tons are expected to be extracted.
b).If the company plans to extract 1,150 tons, at what number of tons can cost-effectiveness be achieved?
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