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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

All-That-Glitters Mining Company paid $49.250.000 for a parcel of land, including the gold mining rights. In addition, the company spent $7.462.500 to prepare the site for mining operations. It is estimated that the residual value of the asset will be $5.300.000. Geologists estimate the site contains a total of 225.000 ounces of gold.

a. What is the average depletion cost per ounce?

Total depletion = 49.250.000 + 7.462.500 - 5.300.000 = $51,412,500

Average depletion cost per ounce = 51 , 412 , 500 225 , 000 = $ 228.50

b. If 16,200 ounces were mined in the first year of operation, what is the amount of the depletion cost?

First-year depletion cost = 16 , 200   ×   228.50   = $ 3 , 701 , 700

(a)

To determine

To calculate: The average depletion cost per ounce of parcel of land when the All-That-Glitters Mining Company paid $49,250,000 and to prepare the site for mining operation, the company spent $7,462,500. The residual value of the asset is $5,300,000. The site contains 225,000 ounces of gold.

Explanation

Given Information:

The All-That-Glitters Mining Company paid $49,250,000 and to prepare the site for mining operation, the company spent $7,462,500. The residual value of the asset is $5,300,000. The site contains 225,000 ounces of gold.

Formula used:

The average depletion cost per unit is:

Average depletion cost per unit=Total cost of resourceResidual valueEstimated total units available

Calculation:

Consider All-That-Glitters Mining Company paid $49,250,000 and to prepare the site for mining operation, the company spent $7,462,500

(b)

To determine

To calculate: The amount of depletion cost of first year when the All-That-Glitters Mining Company paid $49,250,000.

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