Question

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $103,000. The machine's useful life is estimated to be 5 years, or 210,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 33,600 units of product. Determine the machines' second year depreciation under the straight-line method.

Answer 1

Answer:

• $15,360

Explanation:

1. Calculate the depreciation per unit produced:

Depreciation can be established in terms of time or units produced.

In this case, since you know the number of units of products produced during the second year of machine's use, your are interested in establishing deprectiation in terms of the number of units produced.

You are given:

• useful life: 210,000 units
• salvage value: $7,000
• purchase cost: $103,000

Straight-line depreciation:

• Depreciation = [purchase cost - salvage value] / (number of units)

• Depreciation = [$103,000 - $7,000] / (210,000 untis)

• Depreciation = $16/(35units)

2) Calculate the depreciation of 33,600 units

During its second year the machine produces 33,600 units of product; thus, the corresponding depreciation is:

• Depreciation = 33,600 units × $16/(35 units) = $15,360