Question

The Doodad Company purchases a machine for $440,000. The machine has an estimated residual value of $40,000. The company expects the machine to produce eight million units. The machine is used to make 700,000 units during the current period.If the units-of-production method is used, the depreciation expense for this period is:___________.A. $38,500.B. $700,000.
C. $660,000.D. $35,000.

Answer 1

Answer:

Annual depreciation= $35,000

Explanation:

Giving the following information:

The Doodad Company purchases a machine for $440,000.

The machine has an estimated residual value of $40,000.

The company expects the machine to produce eight million units.

The machine is used to make 700,000 units during the current period.

To calculate the depreciation expense under the units-of production method, we need to use the following formula.

Annual depreciation= [(original cost - salvage value)/useful life of production in units]*units produced

Annual depreciation= [(440,000 - 40,000)/8,000,000]*700,000

Annual depreciation= 0.05*700,000

Annual depreciation= $35,000