A parcel of land purchased by Clean Energy, Inc. is estimated to contain 15.25 million tons of anthracite coal. The purchase price was $10,850,000, startup costs were $3,411,000, and the residual value is $1,464,000. If 2,325,000 tons were produced during the year, find the annual depletion cost. (Round depletion cost per unit to the nearest cent)

Question

Quizplus · Accepted Answer

The annual depletion cost is calculated by first determining the depletion cost per unit, which involves subtracting the residual value from the total cost (purchase price + startup costs), then dividing by the total estimated units (tons of coal). The total cost is $10,850,000 (purchase price) + $3,411,000 (startup costs) = $14,261,000. Subtracting the residual value of $1,464,000 gives $12,797,000. Dividing this by the total estimated units of 15.25 million tons gives a depletion cost per unit of $0.83934426. Multiplying this by the 2,325,000 tons produced during the year gives an annual depletion cost of approximately $1,951,018.03.

A Parcel of Land Purchased by Clean Energy, Inc