On January 1, 2015, Zade Manufacturing Company purchased a machine for $40,000,000. The company expects to use the machine for 24,000 hours over the next 6 years. The estimated sale value of the machine at the end of the sixth year is $40,000. The company used the machine for 3,600 hours in 2015 and 5,000 hours in 2016. What is depreciation expense for the year 2015 if the company uses the units-of-production method of depreciation?

Question

Quizplus · Accepted Answer

The units-of-production method calculates depreciation based on actual usage. The cost minus salvage value is $39,960,000 ($40,000,000 - $40,000). The depreciation per hour is $1,665 ($39,960,000 / 24,000 hours). For 2015, the depreciation expense is $5,994,000 (3,600 hours x $1,665).

On January 1, 2015, Zade Manufacturing Company Purchased a Machine