A Coal Mine Cost $1,000,000 and Is Estimated to Hold

question 2

Multiple Choice

A coal mine cost $1,000,000 and is estimated to hold 50,000 tons of coal. There is no residual value. 6,000 tons are extracted and sold during the first year of operations. Calculate depletion expense for the first year.

• A)$100,000
• B)$150,000
• C)$200,000
• D)$120,000

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs - direct labor, direct materials, and overhead - in the cost of a product.

Net Operating Income

A company's revenue minus its operating expenses, not including taxes and interest.

Fixed Manufacturing Overhead

The total of all production costs that do not change with the level of production output, such as salaries of managers, rent, and property taxes.

Variable Costing

Variable Costing is an accounting method that only assigns variable costs to inventory, treating fixed costs as period expenses.