A company purchased a weaving machine for $290,320. The machine has a useful lif

ID: 2604761 • Letter: A

Question

A company purchased a weaving machine for $290,320. The machine has a useful life of 8 years and a residual value of $16,000. It is estimated that the machine could produce 762,000 bolts of woven fabric over its useful life. In the first year, 111,000 bolts were produced. In the second year, production increased to 115,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Multiple Choice

a. $39,960.

b. $41,400.

c. $81,360.

d. $43,815.

e. $42,291.

Explanation / Answer

Answer: b)= $41,400

Working noted for the above answer is as under

Depreciation Expense

= [(Cost - Salvage Value)/Estimated Useful Life (in units)] * Units Produced

Depreciation per unit

= ($290,320 - $16,000)/762,000 units

= $0.36 per unit

Depreciation Expense for the second year

= $0.36 * 115,000

= $41,400