Fathom Company acquired a $50,000 machine on January 1, 2018. The machine is estimated to have a useful life of 5 years, and a residual value of $5,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. If Fathom Company uses units-of-production depreciation, and the company produces 75,000 units in 2019, what is depreciation expense for 2019?

The depreciation expense for 2019 is $6,750

Explanation:

If Fathom Company uses the units of production depreciation method, we must calculate the depreciation cost per unit:

depreciation cost per unit = (purchase cost - residual value) / total production units

depreciation cost per unit = ($50,000 - $5,000) / 500,000 units

depreciation cost per unit = $45,000 / 500,000 = $0.09 per unit

Now we multiply by the total units produced per year times the depreciation cost per unit = 75,000 units x $0.09 per unit = $6,750