A company purchased a weaving machine for $264,970. The machine has a useful life of 8 years and a salvage value of $14,500. It is estimated that the machine could produce 759,000 bolts of woven fabric over its useful life. In the first year, 109,500 bolts were produced. In the second year, production increased to 113,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?Multiple Choice$37,455.$36,135.$39,623.$73,590.$38,227.
Question
A company purchased a weaving machine for 14,500. It is estimated that the machine could produce 759,000 bolts of woven fabric over its useful life. In the first year, 109,500 bolts were produced. In the second year, production increased to 113,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?Multiple Choice36,135.73,590.$38,227.
Solution
To calculate the depreciation expense using the units-of-production method, we first need to determine the depreciation rate per unit. This is done by subtracting the salvage value from the cost of the machine and then dividing by the total estimated production over the machine's useful life.
Depreciation rate per unit = (Cost of machine - Salvage value) / Total estimated production = (14,500) / 759,000 = $0.33 per unit
Next, we multiply the depreciation rate per unit by the number of units produced in the second year.
Depreciation expense for the second year = Depreciation rate per unit * Units produced in the second year = 37,455
So, the amount of depreciation expense that should be recorded for the second year is $37,455.
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