Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. The machine is estimated to have a $4,000 salvage value.
-The company produces 9,000 units in year 1 and 6,000 units in year 2. Depreciation expense in year 2 is:
A) $3,000.
B) $4,000.
C) $9,600.
D) $4,500.
E) $14,400.

Question

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. The machine is estimated to have a $4,000 salvage value. 
-The company produces 9,000 units in year 1 and 6,000 units in year 2. Depreciation expense in year 2 is:
A) $3,000.
B) $4,000.
C) $9,600.
D) $4,500.
E) $14,400.

Quizplus · Accepted Answer

Depreciation expense per unit = (Cost - Salvage value) / Estimated units of production= ($24,000 - $4,000) / 40,000 units= $0.50 per unitDepreciation expense in year 2 = Units produced in year 2 * Depreciation expense per unit= 6,000 units * $0.50 per unit= $3,000

Mohr Company Purchases a Machine at the Beginning of the Year