Hogan Mining extracts ore for eight different companies in South Dakota. The firm anticipates variable costs of $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): $46,200Hogan 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.C. Hogan uses Martinez Trucking to haul extracted ore. Martinez's monthly charges are as follows:800 to 1,099 tons$70,0001,100 to 1,399 tons 90,0001,400 +
tons 110,0001. From a cost behavior perspective, what type of cost is this?2. If Hogan plans to extract 875 tons, is the company being very "cost effective" with respect to Martinez's billing rates? Briefly discuss.
What will be an ideal response?
| A. Analysis of semivariable cost (variable portion): | ? |
| ($46,200 - 39,900) ÷ (1,300 - 850) = $14 per ton | ? |
| Analysis of semivariable cost (fixed portion): | ? |
| Total cost for 1,300 tons | $46,200 |
| Less:Variable cost (1,300 × $14) | 18,200 |
| Fixed cost | $28,000 |
| ? | ? |
| Variable Portion (875 × $14) | $12,250 |
| Fixed Portion | 28,000 |
| Total | $40,250 |
| ? | ? |
| B. | ? |
| Semivariable cost: | $40,250 |
| Variable cost (875 × $65) | 56,875 |
| Fixed cost ($840,000 ÷ 12 months) | 70,000 |
| Total cost | $167,125 |
C.
1. Step-fixed.
2. No. Notice that the bill will be $70,000 for Hogan's tonnage, and the company could have Martinez haul up to 1,099 tons for the same cost. Ideally, Hogan should try to move to the right side of the step to get a better return on its investment.
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