Final answer:
The statement provided is false. Depletion cost is determined by dividing the total cost of the resource by the estimated recoverable units and is applied to the number of units extracted, not just those units sold.
Step-by-step explanation:
The statement, 'Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold,' would be considered false. Cost depletion is a method used mainly in the extraction industries like mining, oil drilling, and logging, to allocate the cost of natural resource extraction over the period that the resources are consumed. The depletion cost, however, is typically determined by dividing the total cost of the natural resource by the estimated recoverable units, not by the number of units sold. Thus, the depletion cost per unit is multiplied by the number of units extracted, not necessarily sold, during the accounting period. For example, if a company with an oil reserve decides the total extractable units are 1,000 barrels and the total cost of acquiring and developing the reserve is $100,000, the depletion cost per unit would be $100 ($100,000 total cost / 1,000 barrels = $100 depletion cost per unit). If the company extracts and sells 200 barrels during a particular period, the depletion expense for that period would be $20,000 (200 barrels x $100 depletion cost per unit).