Question
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
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 1,800 tons of ore were extracted: |
Straight-line depreciation | $ | 44,000 | |
Charitable contributions* | 13,000 | ||
Mining labor/fringe benefits | 387,000 | ||
Royalties | 121,000 | ||
Trucking and hauling | 380,385 | ||
|
*Incurred only in December. |
Peak activity of 3,100 tons occurred in June, resulting in mining labor/fringe benefit costs of $666,500, royalties of $173,000, and trucking and hauling outlays of $495,385. The trucking and hauling outlays exhibit the following behavior: |
Less than 1,800 tons | $ | 322,885 | |
From 1,8002,299 tons | 380,385 | ||
From 2,3002,799 tons | 437,885 | ||
From 2,8003,299 tons | 495,385 | ||
|
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. |
Straight-line depreciation | |
Charitable contributions | |
Mining labor/fringe benefits | |
Royalties | |
Trucking and hauling |
2. | Calculate the total cost for next February when 2,100 tons are expected to be extracted. |
Total Cost |
3-a. | Is hauling 1,800 tons with respect to Lone Mountains trucking/hauling cost behavior cost effective? | ||||
|
3-b. | Given the current scenario at what number of units cost effectiveness can be achieved? |
Number of Units |
4. | In times of economic difficulties, the management will cut which type of 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. | ||||||
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started