Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product.
- Determine the machines' first year depreciation under the units-of-production method.

Question

Quizplus · Accepted Answer

The units-of-production depreciation method calculates depreciation based on actual usage. The formula is: (Cost - Salvage Value) / Total Estimated Units = Depreciation per Unit. Then, Depreciation per Unit * Units Produced in Year = Depreciation Expense. Here, ($135,000 - $15,000) / 300,000 = $0.40 per unit. $0.40 * 64,500 = $25,800.

Minor Company Installs a Machine in Its Factory at the Beginning