Question - Depletion allowance
Oates Company purchased for $5,600,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $200,000. A building and equipment costing $2,800,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 750,000 tons of ore were mined, and $450,000 was spent for labor and other operating costs.
Instructions - Compute the total cost per ton of ore mined in the first year. (Show computations by setting up a schedule giving cost per ton.)