Your company purchased an asset with a total cost of $300,000. The asset creates

Question

Your company purchased an asset with a total cost of $300,000. The asset creates small items used to help produce computer elements. The asset has an expected useful production life of 1.200.000 items. The asset also has an expected residual value of $50,000. In Year I. the machine produced 95.500 units. In Year 2. the machine produced 110.500 units. In Year 3. the machine produced 120.000 units Please prepare the depreciation amounts for the first 3 years of the asset's life using Units of Production Method.

Explanation / Answer

Depreciation per item = (cost -salvage )/ life in items

                             = (300000 - 50000)/1,200,000

                            = $ .20833 per item

Year 1 :Depreciation = 95500 * .20833 = $ 19895.52

year 2 = 110500 *.20833 = 23020.47

year3 = 120000*.20833 = 24999.6

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