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A company purchased a weaving machine for $264,970. The machine has a useful life of 8 years and a residual value of $14,500. It is estimated that the machine could produce 759,000 bolts of woven fabric over its useful life. In the first year, 109,500 bolts were produced. In the second year, production increased to 113,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

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Samawati

Answer:

$37,455

Explanation:

The unit of production method of depreciation charges higher amounts of depreciation seasons of higher output.  The depreciation amount is propositional to the level of production.

The formula applicable in the calculation of the unit of depreciation is as follows.

Depreciation = depreciable value / estimated production value x units produced

For this machine: depreciable value = Asset cost - residual value

Depreciable value =$264,970- $14500 = $250, 470

Estimated units to be produced = 759,000 bolts

Units produced in the second year =113,500

Depreciation for the second year

=  250, 470/ 759,000 x 113,500

=0.33 x 113, 500

= $37,455

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