Question

Martinez Mining Company purchased land on February 1, 2020, at a cost of $1,031,100. It estimated that a total of 54,000 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 $99,900. It believes it will be able to sell the property afterwards for $111,000. It incurred developmental costs of $222,000 before it was able to do any mining. In 2020, resources removed totaled 27,000 tons. The company sold 19,800 tons.Compute the following information for 2020.
(a) Per unit mineral cost

$enter a dollar amount

(b)
Total material cost of December 31, 2020, inventory

$enter a dollar amount

(c)
Total material cost in cost of goods sold at December 31, 2020

$enter a dollar amount

Answer 1

Answer:

a. $23

b. $165,600

c. $455,400

Explanation:

The computation is shown below:

a. Per unit cost

= Cost of depreciation ÷ estimated number of tons

where,

Cost of depreciation = Purchase value of land +  fair value of this restoration obligation + developmental costs incurred - residual value

= $1,031,000 + $99,900 + $222,000 - $111,000

= $1,241,900

And the estimated number of tons is 54,000 tons

So, the per unit cost would be

= $1,241,900 ÷ 54,000 tons

= $23

b. The total material cost for ending inventory would be

= (27,000 tons - 19,800 tons) × $23

= 7,200 tons  × $23

= $165,600

c. The total material cost for ending cost of goods sold would be

= 19,800 tons × $23

= $455,400