Question

A company has the following information available about an equipment:

Cost	$          350,000
Estimated residual Value	$            10,000
Estimated useful life	10 years
Total estimated output	65,000 hours
Actual hours used year during the first year of operation	5,500 hours

What is the depreciation expense for the first year under the units-of-output method?

Select one:

a. $28,769

b. $34,000

c. $68,000

d. $38,000

Answer 1

Ans.	Option   1st   $28,769
	*Explanations and Calculations:
	First of all, we will calculate the depreciation per unit.
	Depreciation per unit =   (Cost - Residual value) / Estimated output
		($350,000 - $10,000) / 65,000
		$340,000 / 65,000
		$5.2308	per unit
	Now the depreciation expense will be calculated by the following way :
	Depreciation expense = Actual hours used * Depreciation per unit
		5,500 * $5.2308
		$28,769	(rounded)