Question

Cheshire Corporation purchases a machine for​ $125,000. It has an estimated salvage value of​ $10,000 and is expected to produce​ 100,000 units in its lifetime. During the first year of​ operation, it produced​ 15,500 units. To the nearest​ dollar, the depreciation for the first year under the units of production method will​ be: (Round intermediary calculations to the nearest​ cent, and the final answer to the nearest​ dollar.)

Answer 1

Answer: Depreciation for the first year = 17825

Explanation:

Given:

Machine purchased for $125,000

Salvage value of​ $10,000

Output = ​100,000

First year of​ operation, Output = 15500

First, we'll evaluate depreciation per unit over the entire life of the machine:

i.e. $Depreciation\ per\ unit = \frac{ Purchasing\ cost - Salvage\ value}{Total\ units\ produced}$

Depreciation per unit = $\frac{125000 - 10000}{100000}$

Depreciation per unit = 1.15

Now, we'll compute the depreciation for the first year:

Depreciation for the first year = Depreciation per unit ×  Output (first year)

Depreciation for the first year = 1.15 × 15500

Depreciation for the first year = 17825

Answer 2

Answer: $17,825

Explanation:

Given that,

Purchases a machine = $125,000

Estimated salvage value =​ $10,000

Expected to produce = 100,000 units in its lifetime

Produced ​(during first year) = 15,500 units

Depreciable cost = Cost of machine -  salvage value

                             = $125,000 - $10,000

                             = $115,000

Depreciation for first year = Depreciable cost × $\frac{Produced\ ​during\ first\ year}{Expected\ to\ produce}$

                                           = 115,000 × $\frac{15,500}{100,000}$

                                           = $17,825