On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $37,000. A total of $4,000 was paid for installation and testing. During the first year, Milton paid $6,000 for insurance on the equipment and another $700 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $8,000. During Year 1, the equipment produced 14,000 units. What is the amount of depreciation for Year 1

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Business

Mekhi Velazquez

11 January, 10:58

On January 1, Year 1, Milton Manufacturing Company purchased equipment with a list price of $37,000. A total of $4,000 was paid for installation and testing. During the first year, Milton paid $6,000 for insurance on the equipment and another $700 for routine maintenance and repairs. Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $8,000. During Year 1, the equipment produced 14,000 units. What is the amount of depreciation for Year 1

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Vazquez · Answer 1

Annual depreciation = $4,620

Explanation:

Giving the following information:

Purchasing price = $37,000

Installation = $4,000

Milton uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and the estimated salvage value is $8,000. During Year 1, the equipment produced 14,000 units.

First, we will determine the total cost consisting of the purchasing price and all costs to make the equipment operable.

Total cost = 37,000 + 4,000 = $41,000

Now, to calculate the depreciation expense, we need to use the following formula:

Annual depreciation = [ (original cost - salvage value) / useful life of production in units]*units produced

Annual depreciation = [ (41,000 - 8,000) / 100,000]*14,000

Annual depreciation = $4,620