Marshall Company purchases a machine for $800,000. The machine has an estimated residual value of $40,000. The company expects the machine to produce two million units. The machine is used to make 400,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is:
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To calculate the depreciation expense using the units-of-production method for the current period, you need to follow these steps:
Step 1: Determine the depreciable cost. Depreciable cost = Cost of the machine - Estimated residual value Depreciable cost = $800,000 - $40,000 Depreciable cost = $760,000
Step 2: Calculate the depreciation per unit. Depreciation per unit = Depreciable cost / Total estimated units production Depreciation per unit = $760,000 / 2,000,000 units Depreciation per unit = $0.38 per unit
Step 3: Compute the depreciation expense for the current period. Depreciation expense = Depreciation per unit x Number of units produced in the period Depreciation expense = $0.38 per unit x 400,000 units Depreciation expense = $152,000
Thus, the depreciation expense for the current period is $152,000.