Enter the total number of consumed units and the total cost per unit of a natural resource into the calculator to determine the depletion expense.
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Depletion Expense Formula
The following formula is used to calculate a depletion expense.
DE = UC * CPU
- Where DE is the depletion expense ($)
- UC is the number of units consumed
- CPU is the total cost per unit ($/unit)
In this case, the cost per unit is derived by the following formula:
CPU =( P + E + D )/ UE
- Where CPU is the cost per unit
- P is the cost to purchase the resource
- E is the cost to explore the resource
- D is the cost to develope the resource
- UE is the expected number of units produced from the resource
What is depletion expense?
A depletion expense is a charge applied to profits in exchange for the use of natural resources. These natural resources can be anything from gas, to oil, to mineral, and more.
How to calculate the depletion expense?
The following example outlines the steps and information needed to calculate a depletion expense.
First, determine the total cost per unit.
For this example, the cost to purchase, explore, and develop the resource was $1,000,000.00. The total number of units expected to be produced by the resource is 50,000. Therefore, the cost per unit is:
1,000,000 / 50,000 = 20$/unit
Next, determine the total number of units that have been consumed/extracted so far. In this case, the number of consumed units is 20,000.
Finally, calculate the depletion expense using the formula above:
DE = UC * CPU
DE = $20 * 20000
DE = $400,000.00