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Problem 6–37Cost Behavior and Analysis; High-Low Method(LO 6-2, 6-4, 6-5)2. Total cost for 1,650 tons: \$823,500
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:¦
Straight-line depreciation ……………………..\$ 25,000
Royalties ……………………………….\$135,000
Charitable contributions* ………………………11,000
Trucking and hauling ………………275,000
Mining labor/fringe benefits …………………..345,000
*Incurred only in December.
Peak activity of 2,600 tons occurred in June, resulting in mining labor/fringe benefit costs of \$598,000, royalties of \$201,000, and trucking and hauling outlays of \$325,000. The trucking and hauling outlays exhibit the following behavior:
Less than 1,500 tons………………………………………………………………………..\$250,000
From 1,500–1,899 tons………………………………………………………………………275,000
From 1,900–2,299 tons ……………………………………………………………………..300,000
From 2,300–2,699 tons ……………………………………………………………………..325,000
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. Show calculations to support your answers for mining labor/fringe benefits and royalties.
2. Calculate the total cost for next February when 1,650 tons are expected to be extracted.
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?
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Problem 6–37Cost Behavior and Analysis; High-Low Method(LO 6-2, 6-4, 6-5)2. Total cost for 1,650 tons: \$823,500 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:¦ Straight-line depreciation ……………………..\$ 25,000 Royalties ……………………………….\$135,000 Charitable contributions* ………………………11,000 Trucking and hauling ………………275,000 Mining labor/fringe benefits …………………..345,000 *Incurred only in December. Peak activity of 2,600 tons occurred in June, resulting in mining labor/fringe benefit costs of \$598,000, royalties of \$201,000, and trucking and hauling outlays of \$325,000. The trucking and hauling outlays exhibit the following behavior: Less than 1,500 tons………………………………………………………………………..\$250,000 From 1,500–1,899 tons………………………………………………………………………275,000 From 1,900–2,299 tons ……………………………………………………………………..300,000 From 2,300–2,699 tons ……………………………………………………………………..325,000 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. Show calculations to support your answers for mining labor/fringe benefits and royalties. 2. Calculate the total cost for next February when 1,650 tons are expected to be extracted. 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? 4. Distinguish between committed and discretionary fixed costs. If Antioch…

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