Mareos Company purchased for $3,800,000 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 $1,800,000 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 $300,000 was spent for labor that year for mining the ore. If all the 750,000 tons were sold during the first year, what is the Cost Of Goods Sold for that year?. (Show computations to calculate cost per ton.)

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aquialaska aquialaska · Answer 1 · 2020-05-13T04:58:30+02:00

Answer:

$31 per ton

Explanation:

The computation of Cost of Goods Sold is shown below:-

Depreciation of mine per ton of extracted ore

= ($3,800,000 - $200,000) ÷ 2,000,000 tons

= $1.80 per ton

Depreciation of building and Equipment = $1,800,000 ÷ 2,000,000 tons

= $0.90 per ton

Quantity of ores mined in the first year = 750,000 tons

Depreciation to be allocated

Mine = 750,000 × $1.80

= $1,350,000

Building & equipment = 750,000 × $0.90

= $675,000

Total cost of goods sold in the first year = Depreciation + labor cost

= ($1,350,000 + $675,000 ) + $300,000

= $2,325,000

Cost of goods sold per ton =Total cost of goods sold in the first year ÷ Tons

= $2,325,000 ÷ $750,000 tons

= $31 per ton