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22 August, 22:33

The Doodad Company purchases a machine for $440,000. The machine has an estimated residual value of $40,000. The company expects the machine to produce eight million units. The machine is used to make 700,000 units during the current period.

If the units-of-production method is used, the depreciation expense for this period is:

a. $38,500.

b. $700,000.

c. $660,000.

d.$35,000.

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  1. 22 August, 23:30
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    d. $35,000

    Explanation:

    For computing the depreciation expense we need to first calculate the depreciation per unit which is shown below:

    = (Original cost - residual value) : (estimated production units)

    = ($440,000 - $40,000) : (8,000,000)

    = ($400,000) : (8,000,000)

    = $0.05 per unit

    Now the depreciation expense is

    = Production units * depreciation per bolts

    = 700,000 units * $0.05

    = $35,000

    We simply applied the above formulas
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