Question

Gemstones Miner Co. acquired mineral rights for $100,000,000. It is estimated that there are 2,500,000 tons of the resource, and during the current year 500,000 tons were mined and sold. What is the rate of depletion?

a. $40 per ton
b. $60 per ton
c. $50 per ton
d. $75 per ton

Answer 1

a. $40 per ton

Step-by-step explanation:

The rate of depletion is a function of two variables;the cost of the mineral right and the tonnage of resources available.

If in the current year, 500,000 tons were mined and sold then the worth of what was sold compared to the worth of the mineral rights is

= ( 500,000/2,500,000) × $100,000,000

= $20,000,000

However, the rate of depletion in dollars per ton

= $100,000,000/2,500,000

=$40 per ton

Option a. $40 per ton is right.

Answer 2

a. $40 per ton

Step-by-step explanation:

`(Activity\: Pool)/(Cost Driver)= Activity\:Rate`

Here we depreciate considering the cost to acquire the mineral rights and other cost needed to start the business. In this case, we are only given with the acquisition of the land.

and the expected amount of tonds of minerals will be mined:

$100,000,000 / 2,500,000 tonds = $40 per ton.