Question

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?
(A) $45,600.
(B) $81,600.
(C) $23,750.
(D) $48,133.
(E) $86,133.

Answer 1

Answer:

Option (B) is correct.

Explanation:

Depreciable base = Cost - Residual Value

                              = $190,000 - $10,000

                              = $180,000

Usage = 75,000 bolts

$Depreciation\ bolt=\frac{depreciable\ base}{usage}$

$Depreciation\ bolt=\frac{180,000}{75,000}$

= $2.40

For Year 1:

Book value = $190,000

Usage = 15,000 bolts

Depreciation expense = Usage × Depreciation bolt

                                      = 15,000 × $2.40

                                       = $36,000

Ending Book Value = Book value - Depreciation expense

                                 = $190,000 -  $36,000

                                 = $154,000

Accumulated Depreciation =  $36,000

For Year 2:

Book value = $154,000

Usage = 19,000 units

Depreciation expense = Usage × Depreciation bolt

                                      = 19,000 × $2.40

                                       = $45,600

Ending Book Value = Book value - Depreciation expense

                                 = $154,000 -  $45,600

                                 = $108,400

Accumulated Depreciation = Depreciation expense Year 1 + Depreciation expense Year 2

                                             = $36,000 + $45,600

                                             = $81,600