Question

on january 1, year 1, milton manufacturing company purchased equipment with a list price of $28,000. a total of $2,200 was paid for installation and testing. during the first year, milton paid $3,300 for insurance on the equipment and another $610 for routine maintenance and repairs. milton uses the units-of-production method of depreciation. useful life is estimated at 100,000 units, and estimated salvage value is $4,400. during year 1, the equipment produced 12,000 units. what is closest to the amount of depreciation for the year? (do not round intermediate calculations.) multiple choice $3,096 $3,565 $4,020 $3,492

Answer 1

Using the units-of-production method, the depreciation of Milton Manufacturing Company's equipment for the first year is $3,096, calculated by the cost minus the salvage value divided by estimated total units, then multiplied by the units produced in the first year.

Step-by-step explanation:

To find the amount of depreciation for the Milton Manufacturing Company's equipment using the units-of-production method, we must first determine the depreciation per unit and then use it to calculate the total depreciation for the units produced in the first year. The formula for the depreciation per unit is:

Depreciation per unit = (Cost of equipment - Salvage value) / Total estimated units of production.

The initial cost of the equipment includes both the list price and the installation/testing costs. Thus, the total cost is $28,000 + $2,200 = $30,200. The salvage value is given as $4,400 and the estimated total units of production as 100,000 units.

Depreciation per unit = ($30,200 - $4,400) / 100,000 units = $0.258 per unit.

In the first year, the equipment produced 12,000 units. Therefore, the depreciation for the year would be 12,000 units × $0.258 per unit.

Year 1 Depreciation = 12,000 units × $0.258 per unit = $3,096.

Insurance and maintenance costs are not included when calculating depreciation using the units-of-production method, so the correct depreciation amount for the first year is $3,096.