Question

A factory machine was purchased for $375000 on January 1, 2021. It was estimated that it would have a $75000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40000 hours in the 5 years. The company ran the machine for 4000 actual hours in 2021. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be $37500. $75000. $60000. $30000.

Answer 1

Answer: $30,000

Explanation:

Given the following :

Cost of machine = $375,000

Salvage value = $75,000

Useful years = 5years

Estimated runtime during useful years = 40000 hours

Actual runtime in 2021 = 4000 hours

Using the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be :

[(Cost of machine - salvage value) ÷ estimated runtime] × Actual runtime in 2021

[($375,000 - $75,000) ÷ 40000] × 4000

[ $300,000 ÷ 40,000] × 4000

$7.5 × 4000 = $30,000