Question

I'm having trouble calculating total cost.

The question is: Calculate the total cost for next February when 1,300 tons are expected to be extracted. I understand that trucking and hauling will be 144,970, and I also add 20,000 for depreciation, im not sure about the other costs and how to add.

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 1,000 tons of ore were extracted:

Straight-line depreciation	$	20,000
Charitable contributions*		5,000
Mining labor/fringe benefits		135,000
Royalties		145,000
Trucking and hauling		144,970

*Incurred only in December.

Peak activity of 2,300 tons occurred in June, resulting in mining labor/fringe benefit costs of $310,500, royalties of $301,000, and trucking and hauling outlays of $174,970. The trucking and hauling outlays exhibit the following behavior:

Less than 1,000 tons	$	129,970
From 1,000–1,499 tons		144,970
From 1,500–1,999 tons		159,970
From 2,000–2,499 tons		174,970

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 1,300 tons are expected to be extracted.

3-a. Is hauling 1,000 tons with respect to Antioch’s trucking/hauling cost behavior cost-effective?

3-b. Given the current scenario 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 company’s charitable contribution cost arises only in December.

Answer 1

The question is being asked on the total costs at the 1300 level, so

The costs provided are : Depreciation - fixed costs, charitable contribution cost - discretionary fixed or one time expense, Mining labor/fringe benefits - variable cost , royalty expenses - semi-variable cost, Trucking and hauling - step variable.

the total costs at the operational level of 1300 tons are:

Fixed costs - Dep. $20000 + Charitable contri. $5000 = Total fixed costs = $25000 - A

Mining labor/fringe benefits = ($135000 / 1000) * 1300 = $175500 - B

Royalty costs =

High = 2300 tons $301000

Low = 1000 tons $145000

Difference = 1300 tons $156000

Variable part of the cost = $156000 / 1300 = $120 per ton

Fixed part of the cost = 145000 - 120 * 1000 = $25000

At 1300 level, royalty cost = ($120 * 1300) + 25000 = $181000 - C

trucking and hauling cost = $144,970 - D

Total cost at 1300 level = A + B + C + D = 25000 + 175500 + 181000 + 144970 = $526470