Question

A coal mine cost $1,003,000 and is estimated to hold 50,000 tons of coal. There is no residual value. During the first year of operations, 6,000 tons are extracted and sold. Calculate depletion per unit. (Round your answer to the nearest cent.)

Answer 1

The depletion per unit is calculated by dividing the total cost of the coal mine ($1,003,000) by the total estimated coal reserves (50,000 tons), resulting in a depletion cost of $20.06 per ton of coal.

Step-by-step explanation:

The calculation of depletion per unit involves dividing the total cost of acquiring the coal reserves by the estimated amount of coal that can be extracted from it. In this case, the cost of the coal mine is $1,003,000, and the estimated reserves are 50,000 tons of coal. To calculate the depletion per unit, we use the following formula:

Depletion per Unit = Total Cost / Total Est. Reserves

Depletion per Unit = $1,003,000 / 50,000 tons

Depletion per Unit = $20.06 per ton

Therefore, the depletion per unit is $20.06 per ton, and this will be the amount allocated to depletion expenses for each ton of coal extracted and sold in the first year, where 6,000 tons are sold.