Question

Marshall Company purchases a machine for $600,000. The machine has an estimated residual value of $120,000. The company expects the machine to produce eight million units. The machine is used to make 460,000 units during the current period.

If the units-of-production method is used, the depreciation expense for this period is:

Multiple Choice

• $27,600.

• $460,000.

• $340,000.

• $34,500.

Answer 1

Under the unit cost method the depreciable value of the assets is being depreciated proportionately to the usage of the activity in the current period to the entire useful lifes activities.

Here the machine is costing $ 600,000 and has a salvage value of $ 120,000, thus the depreciable assets value = cost - salvage value

Depreciable value of machine = 600000 - 120000 = $ 480,000.

Total units to be produced in lifetime = 8,000,000 and in current year the units produced Is only 460,000 units.

Thus depreciation for the year = depreciable assets × units produced this year / lifetime units expectations.

Depreciation expense for this period = $ 480,000 × 460000 / 8,000,000

Depreciation expense for the period = $ 27,600

Thus the correct Option is---------A i.e ,$ 27,600.