Question

A copy machine was purchased for $35,000. The machine is estimated to have a useful life of four years with a residual value of $3,000. It is estimated that the machine will make 2,000,000 copies. Using the units-of-activity method to depreciate the copy machine, what information is needed to calculate the first year's depreciation if 550,000 copies were made?
(A) $8,750
(B) $8,000
(C) $8,800
(D) $32,000

Answer 1

Answer:

(C) $8,800

Explanation:

Total Cost of Machine = $35,000

Salvage Value = $3,000

Value to be Depreciated = $35,000 - $3,000 = $32,000

Using units of activity method, we have copies to be made by machines = 2,000,000

Depreciation per copy = $32,000/2,000,000 = $0.016 per copy

Depreciation for year 1 = Number of copies $\times$ $0.016

= 550,000 $\times$ $0.016 = $8,800

Final Answer

(C) $8,800