Question

A piece of machinery has a cost basis of $50,000. Its salvage value will be $5,000 after 9,000 hours of operation. With units-of-production depreciation, what is the allowable depreciation rate per hour? What is the book value after 4,000 hours of operation?

Answer 1

Depreciable rate= $5 per hour

Annual depreciation= $20,000

Step-by-step explanation:

Giving the following information:

A piece of machinery has a cost basis of $50,000. Its salvage value will be $5,000 after 9,000 hours of operation.

Using the units of production method, we need to use the following formula for each year:

Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated

Depreciable rate= [(50,000 - 5,000) / 9,000= $5 per hour

Annual depreciation= 5*4,000= $20,000