A company purchased a weaving machine for $206,520. The machine has a usedul lif

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? 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?

Explanation / Answer

Depreciation using the Units-of-production method

=cost of the machine - residual value / estimated production units

=$206520-$11000 / 752000units

=$0.26 per unit

Depreciation for the second year would be

=production in second year x depreciation per unit

=110000 unints x $0.26 per unit

=$28,600

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