Ex. 3-Depletion allowance.(14 pts) Mareos Company purchased for $3,800,000 a min

Question

Ex. 3-Depletion allowance.(14 pts) Mareos Company purchased for $3,800,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $200,000. A building and equipment costing $1,800,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 750,000 tons of ore w ned, and $300,000 was spent for labor and other operating costs. For the second year 900,000 tons of ore were extracted and $360,000 was spent for labor and other operating costs. Instructions Compute the total cost per ton of ore mined in the first and second years. (Show computations by setting up a schedule giving cost per ton.) First year: tem Base $3,600,000 Ore Building and Equipment Labor and Operating Expenses 2,000,000 1,800,000 2,000,000 300,000 750,000 Total Cost Total depletion cost for the first year Second year: Tons $3,600,000 Ore Building and Equipment Labor and Operating Expenses 2,000,000 1,800,000 2,000,000 900,000 360,000 Total Cost Total depletion cost for the second year

Explanation / Answer

First year: Item Base Tons Per Ton Ore 3,600,000 2,000,000 1.80 Building and Equipment 1,800,000 2,000,000 0.90 labour and operating expense 300,000 750,000 0.40 Total Cost 3.10 Total Depletion cost per year: 750,000 tons * 3.10 = $2325,000 Second year: Item Base Tons Per Ton Ore 3,600,000 2,000,000 1.80 Building and Equipment 1,800,000 2,000,000 0.90 labour and operating expense 360,000 900,000 0.40 Total Cost 3.10 Total Depletion cost per year: 900,000 tons * 3.10 = $2790,000

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