Question

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $43,500. The machine’s useful life is estimated at 10 years, or 385,000 units of product, with a $5,000 salvage value. During its second year, the machine produces 32,500 units of product.

Determine the machine’s second-year depreciation under the:

straight-line:______________

units-of-production: _______________

Assume that the machine was installed on March 1 of the current year. Using the straight-line method of depreciation, what would the first year depreciation expense be?

Answer 1

1	Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset
	Depreciation expense = (43500-5000) /10	3850
	Depreciation expense
Year 2	3850*12/12	3,850
3	Units of production method
	Depreciation per item = (Cost of asset - salvage value )/ total units
	Depreciation per item = (43500-5000)/385000
	Depreciation per item	0.1
	Depreciation expense
Year 2	32500*.1	3250
	If purchased on 1 march
	Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset
	Depreciation expense = (43500-5000) /10	3850
	Depreciation expense
Year 1	3850*10/12	3,208