Question

Bina Co. purchased a machine on January 1st for $15,000 and estimates it will use the machine for three years with a $3,000 salvage value. Nina estimates that they will produce 1,500 units during year one, 1,000 units during year two, and 1,250 units during year three. Using the units-of-production method, compute the
machine's second year depreciation expense.

Answer 1

The  machine's second year depreciation expense is $3,200.

The units-of-production method is a depreciation method where the depreciation expense in a given year is determined by the units of output produced in a given year.

Units-of-production method = (output produced that year / total output of the machine) x (Cost of asset - Salvage value)

Total output of the machine = 1500 + 1000 + 1250 = 3750

Year 2 depreciation expense = (1000 / 3750) x ($15,000 - $3000) = $3,200

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