Question

Mohr company purchases a machine at the beginning of the year at a cost of $24,000. the machine is depreciated using the units-of-production method. the company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. the machine is estimated to have a $4,000 salvage value. the company produces 9,000 units in year 1 and 6,000 units in year 2. depreciation expense in year 2 is:

Answer 1

$3,000 is the depreciation expense in year 2.

Further explanation:

Depreciation expense:

Depreciation expense refers to the fall in the value of an asset. There are three types of depreciation method which are:

1. Straight-line method

2. Diminishing method

3. Units of production method

Calculation of the depreciation expense in year 2:

Depreciation expense:

$\begin{aligned} \text{Depreciation expense}&=\text{Estimated units in year 2}\:\times\:\text{Depreciation rate}\\&=6,000\:\text{units}\:\times\:\ 0.5\:\text{per\:unit}\\&=\ 3,000\end{aligned}$

Working note 1:

Calculate the value of depreciation rate:

$\begin{aligned} \text{Depreciation rate}&=\dfrac{\text{Cost of machine}\:-\: \text{Residual value}} {\text{Number of units}} \\&=\dfrac{\ 24,000 - \ 4,000}{40,000\:\text{units}}\\&=\ \:0.5\:\text{units}\end{aligned}$

Thus,$3,000 is the depreciation expense in year 2.

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Answer details:

Grade: High School

Subject: Accounting

Chapter: Depreciation

Keywords: Mohr company purchases a machine at the beginning of the year at a cost of $24,000. the machine is depreciated using the units-of-production method. the company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. the machine is estimated to have a $4,000 salvage value. the company produces 9,000 units in year 1 and 6,000 units in year 2. depreciation expense in year 2 is, fall amount, asset, straight-line method, diminishing method, units-of-production method, asset, depreciation method, three types.

Answer 2

$2,654,241

Unit sales; Worst = 160 (1 - 0.09) = 145.6 units
Variable cost per unit; Worst = $12,000 (1 + 0.09) = $13,080
Fixed costs; Worst = $283,000 (1 + 0.09) = $308,470
OCF; Worst = [($24,000 - $13,080)(145.6) - $308,470][1 - 0.34] + 0.34($630,000/5) = $888,618.12