A factory machine was purchased for $375,000 on January 1, 2018. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2018. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2018 would be A) $37,500. B) $60,000. C) $75,000. D) $30,000.

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Business

Adrienne

29 September, 03:04

A factory machine was purchased for $375,000 on January 1, 2018. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2018. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2018 would be A) $37,500. B) $60,000. C) $75,000. D) $30,000.

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Arnav Hopkins · Answer 1

The amount of depreciation expense for 2018 would be D) $30,000.

Explanation:

The units-of-activity depreciation method is calculated by using the following formula:

Depreciation Expense = [ (Cost of machine - Salvage Value) / Life in Number of hours run] x Number of hours actual run = Depreciation Expense per hour x Number of hours run.

In the company,

Depreciation Expense per hour = ($375,000 - $75,000) / 40,000 = $7.5

The company ran the machine for 4,000 actual hours in 2018.

The amount of depreciation expense for 2018 = $7.5 x 4,000 = $30,000