Question

A company purchased a machine for $970,000. the machine has a useful life of 12 years and a residual value of $4,500. it is estimated that the machine could produce 1,000,000 units over its useful life. in the first year, 200,000 units were produced. in the second year, production increased to 300,000 units. using the units-of-production method, what is the book value of this asset at the end of the second year of operations?

Answer 1

Cost less salvage value = 970,000 - 4500 = 965,500
Capacity of machine = 1,000,000 units.
units consumed at the end of second year = 200,000 + 300,000 = 500,000 units.
Capacity remaining = 1,000,000 - 500,000 = 500,000 units
Book value at end of second year = (500,000/1,000,000)*965,500 + 4500
= $487,250