How to Calculate Depletion Expense per Ton of Ore?

What is the depletion expense per ton of ore?

What is the formula to calculate the depletion expense per ton of ore?

The depletion expense per ton of ore is approximately $0.770.

The depletion expense per ton of ore is calculated by determining the total depletion cost and then dividing it by the total tons of ore mined.

When a company purchases a tract of land for its natural resources, such as ore, it incurs a cost which includes the extraction and depletion of these resources over time. In this case, the company purchased the land for $1,920,500 and expects to mine 2,150,000 tons of ore from it. The salvage value of the land after mining is expected to be $265,000.

To calculate the depletion expense per ton of ore, we need to first determine the total depletion cost. This cost is the difference between the initial cost of the land and the salvage value.

Total depletion cost = Cost of the land - Salvage value = $1,920,500 - $265,000 = $1,655,500

Next, we divide the total depletion cost by the total tons of ore mined to get the depletion expense per ton of ore.

Depletion expense per ton of ore = Total depletion cost / Total tons of ore mined = $1,655,500 / 2,150,000 tons ≈ $0.770

Therefore, the depletion expense per ton of ore is approximately $0.770. By understanding this calculation, companies can better estimate their costs and manage their natural resources efficiently.