Question

Swifty Mining Company purchased land on February 1, 2020, at a cost of $996,100. It estimated that a total of 51,900 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 $93,600. It believes it will be able to sell the property afterwards for $104,000. It incurred developmental costs of $208,000 before it was able to do any mining. In 2020, resources removed totaled 25,950 tons. The company sold 19,030 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

Answer
a. Per unit mineral cost	(Purchase price of land + fair value of restoration obligation + developmental costs - residual value) / Estimated tons of mineral available for mining
	= (996100+93600+ 208000-104000) / 51900
	= $ 23
b. Total material cost of December 31, 2020, inventory	Total resources removed - Total resources sold * Per unit mineral cost
	= (25950 - 19030) * 23
	= $ 1,59,160
c. Total material cost in COGS at December 31, 2020	Total resources sold * Per unit mineral cost
	= 19030 * 23
	= $ 437690