Question

Cesario Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 15,000 units. To the nearest dollar, the depreciation for the first year under the units of production method will be:

A. $37,500.

B. $34,500.

C. $31,250.

D. $28,750.

Answer 1

The depreciation for the first year under the units of production method will be $34,500. This is found by first calculating depreciation per unit as $2.30 and then multiplying by the 15,000 units produced in the first year.

Step-by-step explanation:

The student asked how much depreciation should be allocated to the first year of a machine's operation under the units of production method. To calculate this, one needs to determine the depreciation cost per unit by subtracting the salvage value from the purchase price and then dividing by the total units the machine is expected to produce over its lifetime.

First, we find the cost to be allocated to depreciation:
$125,000 (purchase price) - $10,000 (salvage value) = $115,000 (total depreciation).

Next, we calculate the depreciation per unit:
$115,000 / 50,000 units = $2.30 per unit.

Finally, multiplying the depreciation per unit by the number of units produced in the first year:
$2.30 * 15,000 units = $34,500. Therefore, the answer is B. $34,500.