Question

Alcide Mining Company purchased land on February 1, 2017, at a cost of $1,190,000. It estimated that a total of 60,000 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 $90,000. It believes it will be able to sell the property afterwards for $100,000. It incurred developmental costs of $200,000 before it was able to do any mining. In 2017, resources removed totaled 30,000 tons. The company sold 22,000 tons.
Required:
Compute the following information for 2017.(a) Per unit mineral cost.(b) Total material cost of December 31, 2017, inventory.(c) Total materials cost in cost of goods sold at December 31, 2017.

Answer 1

Answer:

a. $23

b. $184,000

c. $506,000

Explanation:

a. The computation of Per unit mineral cost is shown below:-

Cost of land                              $1,190,000

Add: Restoration obligation     $90,000

Add: Development cost           $200,000

Less: Resale value of property $100,000

Total cost of land                       $1,380,000

Total estimated tons of minerals 60,000

Per ton mineral cost                    $23

b. The computation of Total material cost is shown below:-

Ending inventory = Total mined tons - Sold tons

= 30,000 - 22,000

= 8,000

Cost of ending inventory = Ending inventory × Cost per ton

= 8,000 × $23

= $184,000

c. The computation of Total materials cost in cost of goods sold is shown below:-

Cost of goods sold = Total units Sold × Cost per ton

= 22,000 × $23

= $506,000