ACC 650 - REVISED PROBLEM 6-37

Problem 637 Cost 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 1,200 tons of ore were extracted: Straight-line depreciation ........................... $ 20,000 Royalties ...................................... $150,000 Charitable contributions* ............................ 32,000 Trucking and hauling ................... 225,000 Mining labor/fringe benefits ........................ 390,000 *Incurred only in December.

Peak activity of 2,400 tons occurred in June, resulting in mining labor/fringe benefit costs of $780,000, royalties of $210,000, and trucking and hauling outlays of $300,000. The trucking and hauling outlays exhibit the following behavior:

Less than 1,649 tons .............................................................................................................................................. $225,000 From 1,6501,799 tons ........................................................................................................................................ 250,000 From 1,8002,399 tons ........................................................................................................................................ 275,000 From 2,4002,699 tons ........................................................................................................................................ 300,000

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 1,800 tons are expected to be extracted. 3. Comment on the cost-effectiveness of hauling 1,650 tons with respect to Antiochs trucking/hauling cost behavior. Can the companys effectiveness be improved? How? 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? 5. Speculate as to why the companys charitable contribution cost arises only in December.