Question

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $37,000. A total of $4,000 was paid for installation and testing. During the first year, Milton paid $6,000 for insurance on the equipment and another $700 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $8,000. During Year 1, the equipment produced 14,000 units. What is the amount of depreciation for Year 1

Answer 1

Answer:

Annual depreciation= $4,620

Explanation:

Giving the following information:

Purchasing price= $37,000

Installation= $4,000

Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and the estimated salvage value is $8,000. During Year 1, the equipment produced 14,000 units.

First, we will determine the total cost consisting of the purchasing price and all costs to make the equipment operable.

Total cost= 37,000 + 4,000= $41,000

Now, to calculate the depreciation expense, we need to use the following formula:

Annual depreciation= [(original cost - salvage value)/useful life of production in units]*units produced

Annual depreciation= [(41,000 - 8,000)/100,000]*14,000

Annual depreciation= $4,620