Question

The Doodad Company purchases a machine for $440,000. The machine has an estimated residual value of $40,000. The company expects the machine to produce eight million units. The machine is used to make 700,000 units during the current period.

If the units-of-production method is used, the depreciation expense for this period is:

a. $38,500.
b. $700,000.
c. $660,000.
d.$35,000.

Answer 1

d. $35,000

Step-by-step explanation:

For computing the depreciation expense we need to first calculate the depreciation per unit which is shown below:

= (Original cost - residual value) ÷ (estimated production units)

= ($440,000 - $40,000) ÷ (8,000,000)

= ($400,000) ÷ (8,000,000)

= $0.05 per unit

Now the depreciation expense is

= Production units × depreciation per bolts

= 700,000 units × $0.05

= $35,000

We simply applied the above formulas