Uranium Mining Company, founded in 1982 to mine and market uranium, purchased a mine in 1983 for $900 million. It estimated that the uranium had a market value of $150 per ounce.
By 2010, the market value had increased to $300 per ounce. Records for 2010 indicate the following:
|
Production |
200,000 ounces |
|
Sales |
230,000 ounces |
|
Deliveries |
190,000 ounces |
|
Cash collection |
210,000 ounces |
|
Costs of production including depletion* |
$50,000,000 |
|
Selling expense |
$2,000,000 |
|
Administrative expenses |
$1,250,000 |
|
Tax rate |
50% |
*Production cost per ounce has remained constant over the last few years, and the company has maintained the same production level.
Required
a. Compute the income for 2010, using each of the following bases:
1. Receipt of cash
2. Point of sale
3. End of production
4. Based on delivery
b. Comment on when each of the methods should be used. Which method should Uranium Mining Company use?