Question

A company purchased a weaving machine for $206,520. The machine has a usedul life of 8 years and a residual value of $11,000. It is estimated that the machine could produce 752,000 bolts of woven fabric over its useful life. In the first year, 106,000 bolts were produced. In the swcond year, production imcreased to 110,000 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:

The amount of depreciation expense that should be recorded for the second year is $28,600

Explanation:

The computation of the depreciation per units or bolts under the units-of-production method is shown below:

= (Original cost - residual value) ÷ (estimated production bolts)

= ($206,520 - $11,000) ÷ (752,000 bolts)

= ($195,520) ÷ (752,000 bolts)

= $0.26 per bolt

Now for the second year, it would be

= Production units in second year × depreciation per bolts

= 110,000 units × 0.26

= $28,600