Fabian Woodworks This company purchased a truck at a cost of $12,000.The truck has an estimated residual value of $2,000 and an estimated life of 5 years,or 100,000 hours of operation.The truck was purchased on January 1,2012,and was used 27,000 hours in 2012 and 26,000 hours in 2013.
-Refer to Fabian Woodworks.If the company uses the units-of-production method,what is the depreciation rate per hour for the equipment?

Question

Quizplus · Accepted Answer

To calculate the depreciation rate per hour for the equipment, first we need to find the total number of hours the truck will be used for its estimated life. As per the data given, the truck has an estimated life of 5 years, or 100,000 hours of operation.

Total hours for estimated life = 100,000 hours

Next, we need to calculate the total depreciation expense for the truck, which can be calculated as follows:

Depreciation expense = (Cost of asset - Residual value) / Total estimated hours for life

Depreciation expense = ($12,000 - $2,000) / 100,000 hours
Depreciation expense = $10,000 / 100,000 hours
Depreciation expense = $0.1 per hour

Therefore, the depreciation rate per hour for the equipment using the units-of-production method is $0.10.

Fabian Woodworks This Company Purchased a Truck at a Cost