Question

Sheffield Mining Company purchased land on February 1, 2020, at a cost of $1,150,300. It estimated that a total of 54,600 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $ 101,700. It believes it will be able to sell the property afterwards for $113,000. It incurred developmental costs of $226,000 before it was able to do any mining. In 2020, resources removed totaled 27,300 tons. The company sold 20,020 tons. Compute the following information for 2020. (a) Per unit mineral cost (b) Total material cost of December 31, 2020, inventory (c) Total material cost in cost of goods sold at December 31, 2020

Answer 1

Purchase cost	1150300
Add: Fair value of restoration obligation	101700
Add: Developmental costs	226000
Less: Salvage value	-113000
Cost for Depletion	1365000
a
Cost for Depletion	1365000
Divide by Total tons	54600
Per unit mineral cost	25
b
Unit in ending inventory	7280	=27300-20020
X Per unit mineral cost	25
Total material cost of Dec 31,2020 inventory	182000
c
Units sold	20020
X Per unit mineral cost	25
Total material cost in Cost of goods sold	500500