Question

A factory machine was purchased for $216000 on January 1, 2022. It was estimated that it would have a $40000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 55000 hours in the 5 years. If the actual number of machine hours ran in 2022 was 5500 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2022 would be a. $21600. b. $17600. c. $35200. d. $43200.

Answer 1

b. $17600

Step-by-step explanation:

The computation of the amount of depreciation expense for the year 2022 is shown below:

But before that first we have to find out the per hour rate which is

Units-of-production method:

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

= ($216,000 - $40,000) ÷ (55,000 hours)

= ($176,000) ÷ (55,000 hours)

= $3.2 per hour

Now for the 2022 year, it would be

= Machine runs in 2022 year × depreciation per hour

= 5,500 hours × $3.2

= $17,600