Question

A piece of manufacturing equipment was purchased at the beginning of 2021 for an original cost of
$50,000. Over it's useful life, the equipment is expected to produce 40,000 widgets as follows:
2021: 4,000 units
2022: 10,000 units
2023: 12,000 units
2024: 8,000 units
2025: 6,000 units
The asset can be salvaged for 10% of its original cost at the end of 2025. The usage of the asset
varies over time and is dependent on the output. What is depreciation expense for 2025?

Answer 1

Answer:

$6,750

Explanation:

The applicable depreciation method for this equipment is the unit of production depreciation method.

Unit of depreciation calculates the depreciation amount by dividing the depreciable value by total expected production.

The depreciable value = cost price - salvage value

Cost price is $50,000

salvage value = 10%. or 10/100

=0.1 x $50,000

=$5,000

Depreciable value =$50,000 - $5000

=$45,000

Total expected production for the five years

=4,000 + 10,000 +12,000 +8,000 + 6,000

=40,000 units

Depreciation per unit = $45,000/40,000

=$1.125 per unit

In 2025, 6,000 units were produced, depreciation will be

=$1.125 x 6000 units

=$6,750