Reference no: EM132530701

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 1,000-1,499 tons 144,970

From 1,500-1,999 tons 159,970

From 2,000-2,499 tons 174,970

• Antioch uses the high-low method to analyze costs.

Required:

Question 1. Classify the five costs listed in terms of their behavior: variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semivariable.

Question 2. Calculate the total cost for next February when 1,300 tons are expected to be extracted.

Question 3-a. Is hauling 1,000 tons with respect to Antioch's trucking/hauling cost behavior cost-effective?

Question 3-b. If the company plans to extract 1,000 tons, at what number of tons can cost-effectiveness be achieved?

Question 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?

Question 5. Speculate as to why the company's charitable contribution cost arises only in December.