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 1,400 tons of ore were extracted:

Straight-line depreciation	$	32,000
Charitable contributions*		9,000
Mining labor/fringe benefits		245,000
Royalties		149,000
Trucking and hauling		240,930

*Incurred only in December. Peak activity of 2,700 tons occurred in June, resulting in mining labor/fringe benefit costs of $472,500, royalties of $253,000, and trucking and hauling outlays of $310,930. The trucking and hauling outlays exhibit the following behavior:

Less than 1,400 tons	$	205,930
From 1,4001,899 tons		240,930
From 1,9002,399 tons		275,930
From 2,4002,899 tons		310,930

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. 2. Calculate the total cost for next February when 1,700 tons are expected to be extracted. 3-a. Is hauling 1,400 tons with respect to Antiochs trucking/hauling cost behavior cost-effective? 3-b. If the company plans to extract 1,400 tons, at what number of tons can cost-effectiveness be achieved? 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? 5. Speculate as to why the companys charitable contribution cost arises only in December.