Digg Co. installs a manufacturing machine in its factory at the beginning of the year at a cost of $36,000. The machine's useful life is estimated at 10 years, or 300,000 units of product, with a $6,000 salvage value. During its first year, the machine produces 14,000 units of product. Determine the machine's first year depreciation expense under the units-of-production method.

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Digg Co. installs a manufacturing machine in its factory at the beginning of the year at a cost of $36,000. The machine's useful life is estimated at 10 years, or 300,000 units of product, with a $6,000 salvage value. During its first year, the machine produces 14,000 units of product. Determine the machine's first year depreciation expense under the units-of-production method.

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Jorden · Answer 1

Annual depreciation (year 1) = $1,400

Explanation:

Giving the following information:

Buying price = $36,000.

Useful units = 300,000 units of product.

Salvage value = $6,000

During its first year, the machine produces 14,000 units of product.

To calculate the depreciation expense for the first year under the units of production method, we need to use the following formula:

Annual depreciation = [ (original cost - salvage value) / useful life of production in units]*units produced

Annual depreciation = [ (36,000 - 6,000) / 300,000]*14,000

Annual depreciation = 0.1*14,000 = $1,400