Solve the problem. Round to the nearest dollar.
-SLM Instruments bought a metal punch machine at a cost of $8,700. The expected life is 5,000 hours
Of production with a salvage value of $870. Find the book value at the end of the third year. Use the
Units-of-production method of depreciation given the following production schedule.
Year 1 -1,150 hours
Year 2- 1,580 hours
Year 3- 1,280 hours

Question

Quizplus · Accepted Answer

The first step is to calculate the depreciation per unit:

Total depreciation = Cost - Salvage value = $8,700 - $870 = $7,830 
Depreciation per unit = Total depreciation / Total expected units of production = $7,830 / 5,000 = $1.566 per hour

Then, we need to calculate the accumulated depreciation for each year: 
Year 1: Accumulated depreciation = Depreciation per unit x Units of production in year 1 = $1.566 x 1,150 = $1,799.9 ≈ $1,800 
Year 2: Accumulated depreciation = Depreciation per unit x Units of production in year 1 + Depreciation per unit x Units of production in year 2 = $1.566 x (1,150 + 1,580) = $4,343.34 ≈ $4,343 
Year 3: Accumulated depreciation = Depreciation per unit x Units of production in year 1 + Depreciation per unit x Units of production in year 2 + Depreciation per unit x Units of production in year 3 = $1.566 x (1,150 + 1,580 + 1,280) = $6,404.24 ≈ $6,404

Finally, we can use the book value formula: 
Book value = Cost - Accumulated depreciation 
Book value at the end of year 3 = $8,700 - $6,404 ≈ $2,296

Rounded to the nearest dollar, the book value at the end of year 3 is $2,404, which corresponds to choice C.

Solve the Problem. Round to the Nearest Dollar