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 1,700 tons of ore were extracted:
Straight-line depreciation$41,000Charitable contributions*12,000Mining labor/fringe benefits348,500Royalties131,000Trucking and hauling344,895
*Incurred only in December.
Peak activity of 3,000 tons occurred in June, resulting in mining labor/fringe benefit costs of $615,000, royalties of $196,000, and trucking and hauling outlays of $449,895. The trucking and hauling outlays exhibit the following behavior:
Less than 1,700 tons$292,395From 1,700-2,199 tons344,895From 2,200-2,699 tons397,395From 2,700-3,199 tons449,895
Antioch uses the high-low method to analyze costs.
Required:
- 1.Classify the five costs listed in terms of their behavior: variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semivariable.
- 2.Calculate the total cost for next February when 2,000 tons are expected to be extracted.
- 3-a.Is hauling 1,700 tons with respect to Antioch's trucking/hauling cost behavior cost-effective?
- 3-b.If the company plans to extract1,700tons, at what number of tons can cost-effectiveness be achieved?
Classify the five costs listed in terms of their behavior: variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semivariable.
a.Straight-line depreciation. ____________________
b.Charitable contributions ______________________
c.Mining labor/fringe benefits. ____________________
d.Royalties ___________________
e.Trucking and hauling ____________________
Calculate the total cost for next February when2,000 tons are expected to be extracted.
Total cost. _______________
Is hauling 1,700 tons with respect to Antioch's trucking/hauling cost behavior cost-effective?
Yes or No ? _____
If the company plans to extract1,700tons, at what number of tons can cost-effectiveness be achieved?
Number of tons _________________
Distinguish between committed and discretionary fixed costs. If Antioch were to experience severe economic difficulties, which of the two types of fixed costs should management try to cut?
Discretionary fixed costs or Commited fixed costs? ___________________
Speculate as to why the company's charitable contribution cost arises only in December.
To demonstrate social responsibility or To claim tax deduction Or To promote business. _________________
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