Question

Sweet Mining Company purchased land on February 1, 2020, at a cost of $856,800. It estimated that a total of 53,100 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $97,200. It believes it will be able to sell the property afterwards for $108,000. It incurred developmental costs of $216,000 before it was able to do any mining. In 2020, resources removed totaled 26,550 tons. The company sold 19,470 tons.

Compute the following information for 2020.

(a)		Per unit mineral cost		$
(b)		Total material cost of December 31, 2020, inventory		$
(c)		Total material cost in cost of goods sold at December 31, 2020

Answer 1

Solution:

Purchase cost	$856,800
Add: Fair value of restoration obligation	$97,200
Add: Developmental costs	$216,000
Less: Salvage value of property	($108,000)
Cost for Depletion	$1,062,000
(a)
Cost for Depletion	$1,062,000
Divide by Total tons	53,100
Per unit mineral cost	20
(b)
Units in ending inventory (26,550 - 19,470)	7,080
Multiply by per unit mineral cost	20
Total material cost of Dec 31,2020 inventory	$141,600
(c)
Units sold	19,470
Multiply by per unit mineral cost	20
Total material cost in Cost of goods sold	$389,400

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