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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

Sequoia Timber Company purchased land containing an estimated 6,500,000 board feet of lumber for $3,700,000. The company invested another $300,000 to construct access roads and a company depot. The residual value of the property and equipment is estimated to be $880,000.

a. What is the average depletion cost per board foot of lumber?

b. If 782.000 board feet were cut in the second year of operation, what is the amount of the depletion cost for that year?

(a)

To determine

To calculate: The average depletion cost per board feet of lumber when the Sequoia Timber Company paid $3,700,000 and to construct access roads and a company depot, the company invested $300,000. The residual value of the property and equipment is $880,000. The land contains 6,500,000 board feet of lumber and in the second year of operation, 782,000 board feet were cut.

Explanation

Given Information:

The Sequoia Timber Company paid $3,700,000 and to construct access roads and a company depot, the company invested $300,000. The residual value of the property and equipment is $880,000. The land contains 6,500,000 board feet of lumber and in the second year of operation, 782,000 board feet were cut.

Formula used:

The average depletion cost per unit is

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

Calculation:

Consider Sequoia Timber Company paid $3,700,000 and to construct access roads and a company depot, the company invested $300,000.

The total cost of resource is:

Total cost=3,700,000+300,000=$4,000,000

Now, consider the provided residual value of the property and equipment is $880,000

(b)

To determine

To calculate: The amount of depletion cost of second year when the Sequoia Timber Company paid $3,700,000.

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