Question

On April 17, 2021, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled $3,840,000. The company expects to extract 960,000 tons of coal during a four-year period. During 2021, 320,000 tons were extracted and sold immediately.

Required:
a. Calculate depletion for 2021.
b. Is depletion considered part of the product cost and included in the cost of inventory?

Answer 1

a. Depletion per ton = $3,840,000 / 960,000 tons

Depletion per ton = $4.00

Depletion for 2021 = Extracted and sold tons * Depletion per ton

Depletion for 2021 = 320,000 * $4.00

Depletion for 2021 = $1,280,000

b. Yes, depletion considered part of the product cost and included in the cost of inventory