Reference no: EM132622166
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 1,500 tons of ore were extracted:
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Straight-line depreciation
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$ 25,000
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Charitable contributions"
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11,000
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Mining labor/fringe benefits
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345,000
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Royalties
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$135,000
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Trucking and hauling
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275,000
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Incurred only in December
Peak activity of 2,600tons occurred in June, resulting in mining labor/fringe benefit costs of S598.000, royalties of $201000, and trucking and hauling outlays of $325,000. The trucking and hauling outlays exhibit the following behavior:
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Less than 1,500 tons
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$250,000
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From 1,500-1,899 tons
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275,000
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From 1,900-2,299 tons
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300,000
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From 2,300-2,699 tons
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325,000
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Required:
Question 1. Classify the five costs listed in terms of their behavior: variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semi variable. Show calculations to support your answers for mining labor/fringe benefits and royalties.
Question 2. Calculate the total cost for next February when 1,650 tons are expected to be extracted.
Question 3. Comment on the cost-effectiveness of hauling 1,500 tons with respect to Antioch's trucking/haul-ing cost behavior. Can the company's effectiveness be improved? How?
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? Why?
Question 5. Speculate as to why the company's charitable contribution cost arises only in December.
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