Question

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 1,300 tons of ore were extracted:

Straight-line depreciation	$	29,000
Charitable contributions*		8,000
Mining labor/fringe benefits		214,500
Royalties		151,000
Trucking and hauling		213,940

*Incurred only in December.

Peak activity of 2,600 tons occurred in June, resulting in mining labor/fringe benefit costs of $429,000, royalties of $268,000, and trucking and hauling outlays of $273,940. The trucking and hauling outlays exhibit the following behavior:

Less than 1,300 tons	$	183,940
From 1,300–1,799 tons		213,940
From 1,800–2,299 tons		243,940
From 2,300–2,799 tons		273,940

Antioch uses the high-low method to analyze costs.

Required:

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

2. 

3. 2. Calculate the total cost for next February when 1,600 tons are expected to be extracted.

4. Total Cost:

6. 3-a. Is hauling 1,300 tons with respect to Antioch’s trucking/hauling cost behavior cost-effective?

7. Yes/No ?

9. 3-b. If the company plans to extract 1,300 tons, at what number of tons can cost-effectiveness be achieved?

10. Number of Tons:

12. 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?

13. Discretionary Fixed Costs or Committed Fixed Costs?

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

16. 

a. Straight-line depreciation b. Charitable contributions c. Mining labor/fringe benefits d. Royalties e. Trucking and hauling OTo demonstrate social responsibility OTo claim tax deduction OTo promote business

Answer 1

1)

a. Straight ­line depreciation	Committed fixed
b. Charitable contributions	Discretionary fixed
c. Mining labor/fringe benefits	Variable
d. Royalties	Semi-variable
e. Trucking and hauling	Step­ fixed

2)

Straight­line depreciation	$    29,000.00
Mining labor/fringe benefits	$ 264,000.00
Royalties	$ 178,000.00
Trucking and hauling	$ 213,940.00
Total cost	$ 684,940.00

3a) No its not effective hauling 1,300 tons with respect to Antioch’s trucking/hauling as trucking and hauling will increase of it.

3b)1,299 tons

4) A Commited fixed cost is because of entity's ownership or use of their facilities and discretionary fixed cost is because of Spending of money for a specific purpose

5)To demonstrate Social responsibility and to claim tax deduction