Question
My next question is question 3-a. Is hauling 1,000 tons with respect to Antiochs trucking/hauling cost behavior cost-effective? I'm thinking the answer would be no
My next question is question 3-a. Is hauling 1,000 tons with respect to Antiochs trucking/hauling cost behavior cost-effective?
I'm thinking the answer would be no because they need to be hauling more although trucking and hauling is cheaper being 144,970 for 1000 ton's, if they arent hauling enough material,
they arent selling as much ore.
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 1,000 tons of ore were extracted:
Straight-line depreciation | $ | 20,000 | |
Charitable contributions* | 5,000 | ||
Mining labor/fringe benefits | 135,000 | ||
Royalties | 145,000 | ||
Trucking and hauling | 144,970 | ||
*Incurred only in December.
Peak activity of 2,300 tons occurred in June, resulting in mining labor/fringe benefit costs of $310,500, royalties of $301,000, and trucking and hauling outlays of $174,970. The trucking and hauling outlays exhibit the following behavior:
Less than 1,000 tons | $ | 129,970 | |
From 1,0001,499 tons | 144,970 | ||
From 1,5001,999 tons | 159,970 | ||
From 2,0002,499 tons | 174,970 | ||
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 1,300 tons are expected to be extracted.
3-a. Is hauling 1,000 tons with respect to Antiochs trucking/hauling cost behavior cost-effective?
3-b. Given the current scenario at what number of tons can cost-effectiveness be achieved?
4. 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?
5. Speculate as to why the companys charitable contribution cost arises only in December.
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