Question

A company purchased a weaving machine for $332,970. The machine has a useful life of 8 years and a residual value of $18,500. It is estimated that the machine could produce 767,000 bolts of woven fabric over its useful life. In the first year, 113,500 bolts were produced. In the second year, production increased to 117,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?A. $94,710B. $48,175. C. $46,535 D. $49,273. E. $51,009.

Answer 1

$48,175

Step-by-step explanation:

Given:

Cost of the weaving machine = $332,970

Useful life = 8 year or 767,000 bolts production

Residual value = $18,500

Number of bolts produced in the first year = 113,500

Number of bolts produced in the second year = 117,500

Now,

Using the units-of-production method of depreciation

Rate of depreciation =
`\frac{\textup{Cost - Residual value}}{\textup{Number of bolts produced during the useful life}}`

=
`\frac{\textup{332,970-18,500}}{\textup{767,000}}`

= 0.41

Therefore,

Depreciation for the second year

= Rate of depreciation × Number of bolts produced in the second year

= 0.41 × 117,500

= $48,175