Question

Hearth Company uses the units-of-production method to estimate depreciation. The company purchased a new machine for $64,000 that will produce an estimated 490,000 units over its useful life. The estimated residual value of the machine is $6,000. What is the depreciation rate per unit?

A. $1.13
B. $0.13
C. $1.12
D. $0.12

Answer 1

The depreciation rate per unit for Hearth Company's machine, using the units-of-production method, is $0.12 per unit.

Step-by-step explanation:

The depreciation rate per unit using the units-of-production method is calculated as the depreciable cost divided by the total estimated units of production. In this scenario, the depreciable cost is the original cost of the machine minus its estimated residual value, which is $64,000 - $6,000 = $58,000. This cost should be spread over the estimated production life of the machine, which is 490,000 units.

Therefore, to calculate the depreciation rate per unit, you divide the depreciable cost of $58,000 by the estimated production life of 490,000 units to get:

Depreciation rate per unit = $58,000 / 490,000 units = $0.12 per unit.