Choice Mining Co. paid $9,000 for some land that was expected to have 50,000 units of a natural resource on it. Development costs amounted to $520. It was expected that the land would require $780 of reclamation costs after production. In the first year of mining, 5,000 units of the natural resource were mined. At the beginning of the second year, it was estimated that only 40,000 units of the natural resource remained and estimated reclamation costs should be increased to $960. In the second year, 8,000 units were mined. What was the amount of depletion for the second year?

Question

Quizplus · Accepted Answer

The depletion cost per unit is calculated by adding the purchase cost, development costs, and reclamation costs, then dividing by the total estimated units. Initially, this is ($9,000 + $520 + $780) / 50,000 = $0.206 per unit. After the first year, the remaining units are 40,000, and reclamation costs are updated to $960, so the new depletion cost per unit is ($9,000 + $520 + $960) / 45,000 = $0.244 per unit. For the second year, depletion is 8,000 units * $0.244 = $1,890.