Question

Sierra Trading purchases a machine for $240,000. The machine has an estimated residual value of $80,000. The company expects the machine to produce eight million units. The machine is used to make 580,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is: Multiple Choice $11,600. $500,000. $17,400. $580,000.

Answer 1

$11,600

Step-by-step explanation:

depreciable value = historical cost - salvage value = $240,000 - $80,000 = $160,000

depreciation rate per unit = depreciable value / total units produced = $160,000 / 8,000,000 = $0.02 per unit produced

if 580,000 units were produced during the present period, depreciation expense = 580,000 x $0.02 = $11,600