Question

Marshall Company purchases a machine for $640,000. The machine has an estimated residual value of $60,000. The company expects the machine to produce two million units. The machine is used to make 720,000 units during the current period.
If the units-of-production method is used, the depreciation rate is:

Answer 1

Answer:

The depreciation rate is option C "0.29 per unit".

Explanation:

The given values are:

Cost of assets,

= $640,000

Salvage value,

= $60,000

Estimated units to be produced,

= 2,000,000 unit

Now,

The depreciation rate will be:

=  $\frac{Cost \ of \ assets-Salvage \ value}{Total \ estimated \ units \ to \ be \ produced}$

On substituting the values, we get

=  $\frac{640,000-60,000}{2,000,000}$

=  $\frac{580,000}{2,000,000}$

=  $0.29 \ per \ unit$