Feller Company purchased a site for a limestone quarry for $100,000 on January 2

Question

Feller Company purchased a site for a limestone quarry for $100,000 on January 2, 2013. It estimates that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of $20,000, after which the land could be sold for $10,000. In 2013, 80,000 tons were quarried and 60,000 tons sold. Costs of production (excluding depletion) are $4 per ton.

Required:

Feller Company purchased a site for a limestone quarry for $100,000 on January 2, 2013. It estimates that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of $20,000, after which the land could be sold for $10,000. In 2013, 80,000 tons were quarried and 60,000 tons sold. Costs of production (excluding depletion) are $4 per ton.

Explanation / Answer

Please rate1. he depletion cost includes the original cost, plus the cleanup costs, less the residual value.

depletion cost per ton =(100,000+20000-10000)/400,000=0.275

2. Total cost = 0.275 +4 per ton = $4.275

3. total cost of the inventory= (80000-60000)*4.275=$85500

4. total cost of goods sold for 2013= (60000)*4.275=

$256500

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