Which method would result m le 6-Depletion allowance. Mareos Company purchased f

Question

Which method would result m le 6-Depletion allowance. Mareos Company purchased for $3,800,000 a mine estimated to contain 2.5 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 were mined, and $300,000 was spent for labor and other operating costs. Instructions Compute the total cost per ton of ore mined in the first year. (Show computations by setting up a schedule giving cost per ton.

Explanation / Answer

Depreciable worth of Mine ($3,800,000 - $200,000)    3,600,000.00 Depreciable worth of Building & Equipment    1,800,000.00 Total Depreciable Worth    5,400,000.00 Depreciation cost per Ton = $5,400,000 / 2,500,000 tons Depreciation cost per Ton = $2.16 per ton Labor Cost & Other Operating Cost per ton = $300,000 / 750,000 tons Labor Cost & Other Operating Cost per ton = $0.40 per ton Total Cost per Ton = $2.16 + $0.40 Total Cost per Ton = $2.56 per ton

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