Nolan Company Acquired a Tract of Land Containing an Extractable $\begin{array}{lr}\text { Land } & \$ 7,000,000 \\\text { Estimated restoration costs } & 1,500,000\end{array}$

question 76

Multiple Choice

Nolan Company acquired a tract of land containing an extractable natural resource.Nolan is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 5,000,000 tons, and that the land will have a value of $1,000,000 after restoration.Relevant cost information follows: $\begin{array}{lr}\text { Land } & \$ 7,000,000 \\\text { Estimated restoration costs } & 1,500,000\end{array}$ If Nolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?

• A)$1.70
• B)$1.50
• C)$1.40
• D)$1.20

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Definitions:

Cost Pools

Cost pools are groupings of individual costs in an accounting system, categorized according to the process that incurred the cost, used to allocate costs effectively to products or services.

Activity-Based Costing

A costing method that allocates overhead and indirect costs to specific activities related to production, providing more accurate product costing.

Activity Rates

Charges used to assign costs to cost objects, based on activities that drive costs in activity-based costing.

Budgeted Cost

An estimate of the expenses for various operations, projects, or activities planned for a specific period.