Question

Casey Electronics has a piece of machinery that costs $300,000 and is expected to have a useful life of 6 years or 40,000 hours. Residual value is expected to be $50,000.
Using the units-of-production method, what is depreciation expense for the first year assuming it was used 6,000 hours?

A. I DON'T KNOW YET
B. $41,667
C. $81,000
D. $70,000

Answer 1

Answer:

None of the given options.

Depreciation expense for year 1 would be $37,500.

Explanation:

Cost = $400,000

Residual value = $50,000  

Expected hours = 40,000

Working hours (year 1) = 6,000 hours  

Now,  

Depreciation per hour = $\frac{Cost-Residual Value}{Expected hours}$  

Depreciation per hour = $\frac{300,000 - 50,000}{40,000}$  

Depreciation per hour = $\frac{250,000}{40,000}$  

Depreciation per hour = $6.25

Depreciation expense (year 1) = Depreciation per hour × Working hours (year 1)

Depreciation expense (year 1) = $6.25 × 6,000

Depreciation expense (year 1) = $37,500