Deep Woods Coal Mines Owns a Shallow Mine Which Is

question 79

Multiple Choice

Deep Woods Coal Mines owns a shallow mine which is currently sitting idle. The property, which includes the mine, was originally purchased for $18.5 million. The property was valued at $6.8
Million when mining ceased and is currently valued at $7.1 million. If the company would spend
$329,000, they could convert this unused mine into an underground storage facility for campers,
Vehicles, and boats. The company estimates that storage fees of $280,000 can be generated per
Year which would net the firm an annual net income of $163,001. What is the opportunity cost
Associated with the storage facility project? (Answer in millions)

• A) $6.8 million
• B) $7.1 million
• C) $7.129 million
• D) $7.429 million
• E) $7.564 million

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Definitions:

Raw Materials

Basic substances in their natural, modified, or semi-processed state used as inputs for a production process.

Work in Process

Inventory that includes goods partially completed in production but not yet ready to be sold to customers.

Cost Accounting Systems

Systems implemented by businesses to track, record, and analyze costs associated with the products they produce and sell.

Job Order Costing

A cost accounting method used to track the costs associated with a specific job or order, capturing direct labor, direct materials, and applied overhead.