PRACTICAL CASE

Cost reports of a mining company for the main product and costing of
by-products of gold and silver
The mining company El Cóndor SAC operates a copper mine property in the
What are the operations:
mining
2) grinding and reduction of the mineral,
3) smelting and refining.
As the production volume is mainly copper, any income
derived from products such as gold and silver are treated as income for
by-products. There are two methods to handle these by-product revenues:
as a reduction of the main product's cost, and
as other income.
To find out the effects on cost accounting of each of these two
methods, two income statements will be prepared that show:
a) the estimated income from gold and silver by-products treated as reductions
of the cost of the main product, copper, and
b) the income from gold and silver sales as other income.
The production costs for the month of January 2011 were as follows:

ELEMENTS OPERATING. DEPT. OF DEPARTMENT OF TOTAL

MINING GRINDING CASTING
Supplies $1,800,000 $2,000,000 S/.1,200,000 $5,000,000
Labor 4,200,000 3,800,000 2,000,000 10,000,000
Carbon 500,000 400,000 300,000 1,200,000
Energy 900,000 300,000 500,000 1,700,000
Exhaustion 10,000,000 0 0 10,000,000
Others 2,600,000 500,000 400,000 3,500,000
TOTAL S/.20,000,000 S/.7,000,000 S/.4,400,000 S/.31,400.0
00

The production for the six (6) months was as follows:

- Producción de cobre………… 20,000 toneladas
Silver (12 troy ounces per pound)............100,000 pounds
Gold …………….... 12,000 troy ounces
The cost of the products in the melting crucibles was estimated at S/.600,000.
The selling expenses for the period were S/.4,200,000, the administrative expenses,
S/.800,000.
Sales for the period were:
18,000 tons of copper at S/.7,000 each ton
9,600 pounds of silver at S/.20.00 per pound
1,000 ounces of gold at S/.80.00 per ounce
Solution:
In order to solve the problem that arises and that is related to the
costing of main products and by-products in a mining company, it will go to
consider two (2) procedures to determine the cost of sales and the results
product of the sale, as detailed in the tables that follow:
a) When the income from by-products reduces the product cost
principal
 El Cóndor Mining Company SAC
Cost of goods sold statement - As of January 31, 2011

PORDUCTION COT
Extraction of the mineral includes depletion. S/.20,000,000
Cost in the milling department 7,000,000
Cost of casting and refining 4,400,000
Total cost 31,400,000
Less: Prod. in process of the foundry dept. 600,000
Cost of finished production $30,800.00
0
Less: Estimated income from by-products:
1,200,000 ounces of silver at S/.0.90 = 1,080,000
12,000 ounces of gold at S/.39.50 = 474,000 (1,554,000)
Net cost of produced copper 29,246,000
Less: Final inventory 2,000 tons of copper at (2,924,600)
S/.1,462.30
COST OF SALES S/.26,321,40
0
S/.29,246,000/20,000 tm = S/.1,462.30.

It can be observed that the income from by-products: silver and gold, reduces the cost.
from finished production as one of the procedures to determine costs and
results of costing of joint products and by-products.

El Cóndor Mining Company SAC

Income Statement
As of January 31, 2011

SALE OF COPPER, 18,000 S/.126,000,000

TONS AT S/. 7,000
Cost of goods sold (26,321,400)
Gross profit on sales 99,678,600
Selling expenses 4,200,000
Administrative expenses 800,000 5,000,000
NET INCOME S/.94,678,600
b) Income from by-products is considered as other income

El Cóndor Mining Company SAC

Cost of goods sold statement
As of January 31, 2011
COPPER SALE, 18,000 S/.126,000.0
TONS AT S/.7,000 00

Cost of goods sold:

Extraction of the mineral includes the S/.20,000.00
exhausted. 00
Cost in the milling department 7,000,000
Cost of casting and refining 4,400,000
 TOTAL COST 31,400,00
0
Less: Prod. in process of the department. (600,000)
foundry
30,800,000
Less: Final copper inventory (3,080,000)
Cost of copper sold 27,720,000
Gross profit on sales 95,200,000

Less: Operational expenses:

Selling expenses 4,200,000
Administration guest. 800,000 5,000,000
Utilized. net in operation 90,200,000
More: Other income:
Silver: 9,600 pounds at S/.20.00 192,000
Gold: 1,000 ounces at S/.80.00 80,000 272,000
TOTAL INGRESOS S/.90,472.00
0
b (S/.30,800,000/20,000 tm) x 2,000 tm = S/. 3,080,000.

Cost statement for a metal foundry company

With the data provided below, a statement of results must be prepared.
from the operations of Santa Marina Mining Company S.A., which shows the
operations on behalf of the company itself and its activities in providing services
from grinding to other companies, for concentrates of both zinc and lead. It
they present all the supporting attachments for the costs.
The company operates several mines and a plant for mineral concentration.
The mineral, as it comes from the mines, must be concentrated at the plant before being
shipped to the foundries. The resulting zinc and lead concentrates between 5 and
7 percent of the original weight.
Both types of concentrates undergo substantially the same processes of
milling. Zinc concentrates contain about 60% zinc, while
Lead concentrates contain around 80% lead.
In addition to the grinding of the rock produced in its own mines, the company carries out
commercial milling for other mines in the surrounding area, accepting as
compensation of 25% of the produced concentrates. The volume of concentrates
produced from the minerals brought to the plant is determined by the
analysis of the samples from each rock car received. This is necessary because: a)
the minerals from the different mines have differences in richness, and b) it is not
It is advisable to mill different batches of ore separately.
The mining lands and the mineral deposits are not owned by the company.
This pays the owners a production right (royalty) of 12% of the
sale price of the concentrates produced with the company's minerals. This
production canon accumulates so the concentrates are sold, through a
charge to Expenses for Production Rights and a credit to accounts payable, at the end
of the month in which sales are made.
The company generates its own energy, which is used 40% in operations.
of mining and 60% in the milling plant.
The inventories of the partially extracted rock and the rock in the grinding process are
constants and can be overlooked for the purposes of this case.
The following operational cases are presented:
Mining cost S/.3,135,600
Grinding cost 1,132,600
 Energy cost 629,200
General Administration 558,600
Total $5,456,000

It is understood that the mining and milling expenses will be distributed among the cost of
the concentrates of zinc and lead based on the value of their sales and that the
General administrative expenses will not be absorbed in production costs:
The cost and production data showed:
Concept Value in Tons
CONCEPT TONS VALUED
EN
Rock extracted on January 1 500 $61,500
Rock extracted and brought to the surface in 27,600
January
Rock extracted in stock on the 31st of 1,500
January
Rock owned by others ground in 4,600
January
Concentrated in stock on the 1st of
January
Zinc - proprietary product only 150 390,000
Lead - own production only 50 180,000
Concentrates produced in January, both own and from others:
Zinc 1,810
Lead 187
Concentrates delivered to others after retaining the company's share:
Zinc 216
Lead 24
Concentrates in stock on January 31:
Zinc - Own product 12
only 5
Lead - Own product 20
only
Sales of concentrate in January:
Zinc S/.6,637,900
Lead 1,100,100

Solution:
Figure No. 1
Santa Marina Mining Company SA
State of concentrate tons
For the month of January 2011
CONCEPT ZINC LEAD
Inventory as of January 1 150 50
Own production of January 1,540 157
Total 1,690 207
Inventory, January 31 125 20
Own concentrates sold 1,565 187
Foreign concentrates held for
grinding
Zinc (1/4 of 216) 54
 Lead (1/4 of 24) 6
Sold in January 1,619 193

The domestic production of January of 1,540 tons of zinc is a result of the

algebraic sum: 1,810 tons of concentrates produced in January, both own and
from others, minus 216 tons of concentrates delivered to others after withholding the
company participation, minus 54 tons of retained external concentrates for
milling. (1,810 - 216 - 54 = 1,540).
The own production of January of 157 tons of lead is the result of subtracting from
concentrate produced in January, both own and others: 187 tons, less
24 tons delivered to others after retaining the company's share,
less 6 tons of foreign concentrates retained for milling. (187 - 24 - 6 =
157).

Table No. 2
Santa Marina Mining Company S.A.
Apportioning of costs for the month of January 2011
MINING GRINDING
Cost of mining and milling, S/.3,135,600 S/.1,132,600
according to data
Energy consumption cost:
Mining, 40% of S/. 629,200 251,680
Milling, 60% of S/. 629,200 377,520
Totals S/.3,387,280 $1,510,120

Frame No. 3
Santa Marina Mining Company S.A.
Cost statement of extracted mineral for the month of January 2011
TONNAGE AMOUNT COST
AS TON

Mineral extracted, January 1 500 S/.61,500 123.00

Mineral extracted in January, 27,600 3,387,280 122.73
table 2
Totals 28,100 3,448,780 122.73
Mineral extracted in 1,500 184,050 122.73
existence, Jan. 31
Transferredtotheplantin 26,600 3,264,730 122.73
January

Frame No. 4
Santa Marina Mining Company S.A.
Cost statement of ground mineral for the month of January 2011
TONELA AMOUNT COST/TON
YES YES
Transferred from the mine in January26,600 S/.1,287,474 48.4012820512
.10
External mineral ground in January 4,600 222,645.90 48.4012820512
Crushed mineral cost, table 2 31,200 S/.1,510,120 48.4012820512
.00
S/.1,510,120 / 31,200 tons = S/. 48.4012820512 per ton.
 Table No. 5
Santa Marina Mining Company S.A.
Cost statement of zinc and lead for the month of January 2011
TON COST IMPORT
AS TON
Cost of mineral extraction 26,600 122.7300000 3,264,618.00
ground, frame 3 000
Cost of grinding, table 4 48.40128205 1,287,474.18
12
Cost of the concentrates 26,600 171.1312820 4,552,092.18
own 512

Cost distribution
Distribution of extraction and milling costs to zinc and lead concentrates,
based on the sale value, we proceed to Sale % Cost
Product Selling Price % Cost
Concentrate of S/.6,637,900 85.78 S/.3,904,784.67
zinc

Concentrate of 1,100,100 14.22 647,307.51

lead
Total S/.7,738,000 100.00 S/.4,552,092.18

Table No. 6
Santa Marina Mining Company S.A. - Income statement for the month
January 2011
concept zinc lead
ton unit import ton unit import
yes yes
Sales 1,565 4,241.4 S/.6,637,900 187 5,882. S/.1,100.10
7 .00 88 0.00

Cost of sales

Initial inventory 150 2,600.0 390,000.00 50 3,600. 180,000.00

0 00
Production of the month 1,540 2,535.5 3,904,784.6 157 4,122. 647,307.51
7 7 98

Total 1,690 4,294,784.6 207 3,996. 827,307.51

7 65

Less: Inventory 125 2,535.5 316,946.25 20 3,996. 79,933.00

final 7 65
Cost of sales 1,565 3,977,838.4 187 3,996. 747,374.51
2 65
Gross profit 1,565 1,699.7 2,660,061.5 187 1,886. 352,725.49
2 8 23

Less: Canons 1,565 796,548.00 187 132,012.00

 paid
Gross profit 1,565 1,190.7 1,863,513.5 187 220,713.49
after 4 8
Expenses 558,600.00
administration
Net utility S/.1,304.91 S/.220,713
3.58 .49