Roan Corp.acquired a tract of land containing an extractable natural resource.The company is required by the government to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 6.2 million tons, and that the land will have a value of $1.2 million after restoration.Relevant cost information follows: If Roan maintains no inventories, what is the depletion charge per ton of extracted resource?
A)$1.00
B)$1.32
C)$1.44
D)$1.63

Question

Roan Corp.acquired a tract of land containing an extractable natural resource.The company is required by the government to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 6.2 million tons, and that the land will have a value of $1.2 million after restoration.Relevant cost information follows:  If Roan maintains no inventories, what is the depletion charge per ton of extracted resource?
A)$1.00 
B)$1.32 
C)$1.44 
D)$1.63

Quizplus · Accepted Answer

Depletion cost per ton = Total cost of the natural resource / Total recoverable units
Total cost of the natural resource = Cost of land + Restoration cost = $1.2 million + $1.5 million = $2.7 million
Total recoverable units = 6.2 million tons
Depletion cost per ton = $2.7 million / 6.2 million tons = $1.44 per ton.
Therefore, the correct answer is option C.

Roan CorpAcquired a Tract of Land Containing an Extractable Natural Resource