Overhead Industries acquired a piece of machinery on January 3,2010.The total cost of the machinery was $255,000.Overhead estimated that the machinery would be used for 68,000 hours before being sold for an estimated $10,200.Overhead uses the units-of-production method of depreciation.Assuming the machine was used for 12,700 hours during 2010,14,100 hours during 2011,and 13,400 hours during 2012,the carrying value of the machinery on January 2,2013 would be:
A)$104,250
B)$110,280
C)$144,720
D)$150,750

Question

Quizplus · Accepted Answer

The units-of-production depreciation method calculates depreciation based on actual usage. The depreciation per hour is ($255,000 - $10,200) / 68,000 hours = $3.60 per hour. Total hours used by January 2, 2013, is 12,700 + 14,100 + 13,400 = 40,200 hours. Total depreciation is 40,200 hours * $3.60 = $144,720. The carrying value is $255,000 - $144,720 = $110,280.

Overhead Industries Acquired a Piece of Machinery on January 3,2010