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On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014.

Question

On 1 January 2013, Zane Manufacturing Company purchased a machine for 40000.Thecompanyexpectstousethemachineatotalof24000hoursoverthenext6years.Theestimatedsalespriceofthemachineattheendof6yearsis40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is 4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014.

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Solution

The question seems to be asking for the depreciation expense for the machine for the years 2013 and 2014. This can be calculated using the activity method (also known as the units of production method) of depreciation. Here's how:

  1. First, calculate the total depreciable cost of the machine. This is the cost of the machine minus its estimated salvage value: 40,000−40,000 - 4,000 = $36,000.

  2. Next, calculate the depreciation rate per hour. This is the total depreciable cost divided by the total expected use of the machine: 36,000/24,000hours=36,000 / 24,000 hours = 1.50 per hour.

  3. Now, calculate the depreciation expense for each year by multiplying the depreciation rate per hour by the number of hours the machine was used each year.

    • For 2013: 1.50perhour∗8,000hours=1.50 per hour * 8,000 hours = 12,000.
    • For 2014: 1.50perhour∗12,000hours=1.50 per hour * 12,000 hours = 18,000.

So, the depreciation expense for the machine was 12,000in2013and12,000 in 2013 and 18,000 in 2014.

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