At the beginning of the year, NRD Company purchased the rights to a natural resource for $10,000,000. The estimated recoverable units from the natural resource amount to 3,500,000 units. During the year, NRD sold 1,000,000 units of the natural resource for

$10 per unit and incurred operating costs other than depletion of $5 per unit. Based on these facts:

a. Compute NRD’s depletion deduction using the cost depletion method.

b. Compute the company’s depletion deduction using the percentage depletion method. Assume a 15 percent specified depletion percentage.

c. Which depletion deduction, cost or percentage, will NRD use this year?