Problem 6-37 Cost Behavior and Analysis; High-Low Method (LO 6-2, 6-4, 6-5)

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 1,100 tons of ore were extracted:

Straight-line depreciation$23,000Charitable contributions*6,000Mining labor/fringe benefits159,500Royalties149,000Trucking and hauling165,960

*Incurred only in December.

Peak activity of 2,400 tons occurred in June, resulting in mining labor/fringe benefit costs of $348,000, royalties of $292,000, and trucking and hauling outlays of $205,960. The trucking and hauling outlays exhibit the following behavior:

Less than 1,100 tons$145,960From 1,100-1,599 tons165,960From 1,600-2,099 tons185,960From 2,100-2,599 tons205,960

Antioch uses the high-low method to analyze costs.

.

2.Calculate the total cost for next February when 1,400 tons are expected to be extracted.

3-b.If the company plans to extract 1,100 tons, at what number of tons can cost-effectiveness be achieved?