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1 March, 22:29

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of accumulated depreciation at the end of the second year?

A) $45,600.

B) $81,600.

C) $23,750.

D) $48,133.

E) $86,133.

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  1. 1 March, 23:13
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    The answer is option (B), accumulated depreciation at end of the second year=36,000+45,600=$81,600

    Explanation:

    Determine the depreciable cost using the formula below;

    depreciable cost=acquisition cost-residual value

    where;

    acquisition cost=$190,000

    residual value=$10,000

    replacing;

    depreciable cost=190,000-10,000=$180,000

    depreciable cost=$180,000

    Determine the cost per unit as follows;

    depreciable cost=cost per bolt*number of bolts produced

    where;

    depreciable cost=$180,000

    cost per bolt=c

    number of bolts produced=75,000 bolts

    replacing;

    180,000=c*75,000

    75,000 c=180,000

    c=180,000/75,000=2.4

    The cost per bolt=$2.4

    annual depreciation for the first year = (2.4*15,000) = $36,000

    annual depreciation for the second year = (2.4*19,000) = $45,600

    accumulated depreciation at end of the second year=36,000+45,600=$81,600
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