Problem: Corporation extracts ore for eight different companies in Colorado. The firm anticipates variable cost for $65 per ton along with annual fixed overhead of $840,000, which is incurred evenly throughout the year. These costs exclude the following semivariable costs, which are expected to total the amounts shown for the high and low points of ore extraction activity:
March (850 tons): $39,900
August (1,300 tons): $46,200
Uses the high-low method to analyze cost behavior.
Required:
A. Calculate the semivariable cost for an upcoming month when 875 tons will be extracted.
B. Calculate the total cost for that same month (Include variable, semivariable and fixed)
C. A-1 uses Cortez Trucking to haul extracted ore. Cortez's monthly charges are as follows:
800 - 1,099 tons $ 70,000
1,100 tons - 1,399 tons 90,000
1,400+ tons 110,000
1. From a cost behavior perspective, what type of cost is this?
2. If A-1 plans to extract 875 tons, is the company being very "cost effective" with respect to Cortez's billing rates? Briefly discuss.