Question

A local diner purchased a stove at a cost of $6,000. The expected life is 7,000 hours of production, at which time it will have no salvage value. Using the units-of-production method, find the depreciation for a year in which the stove is used for 900 hours.

0.67


$1,050


$4,666.67


$774

Answer 1

The following is the formula to calculate depreciation under units of production method:

depreciation =
`(number of units produced)/(life of the asset in units)` multiplied by the (cost - salvage value)

So in our given:

$6000 is the cost
0 for salvage value
900 hours in the units used
7000 hours is the life of the asset

Plug this in the formula:


`(900)/(7000)` multiplied by 6000
= .129 * 6000
= $774

The answer is $774