Question

A factory machine was purchased for $140,000 on January 1, 2022. It was estimated that it would have a $28,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. If the actual number of machine hours ran in 2022 was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2022 would be

Answer 1

$11,200

Step-by-step explanation:

The computation of the depreciation expense using the units of activity method is shown below:

Before that first we have to find out the depreciation rate which is

= (Original cost - residual value) ÷ (estimated machine hours)

= ($140,000- $28,000) ÷ (40,000 hours)

= ($112,000) ÷ (40,000 hours)

= $2.8

Now for the depreciation expense is

= Machine hours × depreciation per machine hours

= 4,000 × $2.8

= $11,200