Lone Mountain Extraction, which mines ore in Idaho, 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 1,500 tons of ore were extracted:

Straight-line depreciation $ 35,000 Charitable contributions* 10,000 Mining labor/fringe benefits 277,500 Royalties 145,000 Trucking and hauling 279,915

*Incurred only in December.

Peak activity of 2,800 tons occurred in June, resulting in mining labor/fringe benefit costs of $518,000, royalties of $236,000, and trucking and hauling outlays of $364,915. The trucking and hauling outlays exhibit the following behavior:

Less than 1,500 tons $ 237,415 From 1,5001,999 tons 279,915 From 2,0002,499 tons 322,415 From 2,5002,999 tons 364,915

Lone Mountain Extraction 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.

a. straight-line depreciation b. charitable contributions c. mining labor / fringe benefits d. royalties e. trucking and hauling

2.

Calculate the total cost for next February when 1,800 tons are expected to be extracted.

3-a. Is hauling 1,500 tons with respect to Lone Mountains trucking/hauling cost behavior cost effective?

Yes No

3-b. Given the current scenario at what number of units cost effectiveness can be achieved?

4. In times of economic difficulties, the management will cut which type of fixed costs?

Committed fixed costs. Discretionary fixed costs.

5. Speculate as to why the companys charitable contribution cost arises only in December. Choose the most relevant reason from the given options.

To demonstrate social responsibility. To claim tax deduction. To promote business.