A company purchased a weaving machine for $281,850. The machine has a useful lif

Question

A company purchased a weaving machine for $281,850. The machine has a useful life of 8 years and a residual value of $15,500. It is estimated that the machine could produce 761,000 bolts of woven fabric over its useful life. In the first year, 110,500 bolts were produced. In the second year, production increased to 114,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Multiple Choice

A.) $42,407

B.) $40,075

C.) $78,750

D.)$40,926

E.) $38,675.

Explanation / Answer

Calculation of depreciation under units of production method:

Depreciation = (purchase cost-Salvage value)*2nd year production/Total life time production

Cost = $281,850

Salvage value = $15,500

Units produced in 2nd year = 114,500 units

Total life time production = 761,000 units

Depreciation = (281,850-15,500)*114,500/761,000 = $40,075

amount of depreciation expense that should be recorded for the second year = $40,075 Option (B) is correct

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