Question

A company purchased a weaving machine for $248,170. The machine has a useful life of 8 years and a residual value of $13,500. It is estimated that the machine could produce 757,000 bolts of woven fabric over its useful life. In the first year, 108,500 bolts were produced. In the second year, production increased to 112,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Answer 1

Answer:

Depreciation for second year = $34,875

Explanation:

Total amount of depreciation to be charged in useful life = Cost of machine - Residual Value

= $248,170 - $13,500 = $234,670

Total expected units to be produced during the life of machine = 757,000 bolts

Depreciation per unit bolt = $234,670/757,000 = $0.31

When depreciation is based on units of production method, it will be charged based on units of production.

Depreciation for second year = Units produced in second year X Rate of depreciation per unit of production

= 112,500 X $0.31 = $34,875

$34,875