Question

Jay Corp bought a machine for 15,000 the machine is expected to produce 10,000 units the machine has a residual value of 5,000 assuming the machine produces 400 units during year 1 what should the depreciation expense be

Answer 1

See the answer below.

Explanation:

Using the units-of-production method, the formula for depreciation is:

`\mathrm{Depreciation\:=\:(Cost\:-\:Residual\:value)/(Total\:Expected\:Units\:\cdot \:\:Units\:produced\:in\:the\:year)}`

`\mathrm{Depreciation\:=\:(15000-5000)/(400\cdot 10000)}\\\\=\$400`

In this case, the depreciation will be $1 per unit produced throughout the useful life.