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Math  /  Algebra

QuestionA factory machine was purchased for $379000\$ 379000 on January 1, 2021. It was estimated that it would have a $80000\$ 80000 salvage value at the end of its 5 -year useful life. It was also estimated that the machine would be run 35000 hours in the 5 years. The company ran the machine for 3500 actual hours in 2021. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be

Studdy Solution

STEP 1

1. The machine was purchased for 379,000.<br/>2.Themachinehasasalvagevalueof379,000.<br />2. The machine has a salvage value of 80,000 at the end of its 5-year useful life.
3. The machine is estimated to be used for 35,000 hours over its 5-year life.
4. The machine was used for 3,500 hours in 2021.
5. The company uses the units-of-activity method for depreciation.

STEP 2

1. Calculate the total depreciable amount.
2. Determine the depreciation rate per hour.
3. Calculate the depreciation expense for 2021.

STEP 3

Calculate the total depreciable amount.
The depreciable amount is the cost of the machine minus its salvage value:
Depreciable Amount=Cost−Salvage Value \text{Depreciable Amount} = \text{Cost} - \text{Salvage Value}
Depreciable Amount=379,000−80,000 \text{Depreciable Amount} = 379,000 - 80,000
Depreciable Amount=299,000 \text{Depreciable Amount} = 299,000

STEP 4

Determine the depreciation rate per hour.
The depreciation rate per hour is the total depreciable amount divided by the total estimated hours of use:
Depreciation Rate per Hour=Depreciable AmountTotal Estimated Hours \text{Depreciation Rate per Hour} = \frac{\text{Depreciable Amount}}{\text{Total Estimated Hours}}
Depreciation Rate per Hour=299,00035,000 \text{Depreciation Rate per Hour} = \frac{299,000}{35,000}
Depreciation Rate per Hour=8.54 \text{Depreciation Rate per Hour} = 8.54

STEP 5

Calculate the depreciation expense for 2021.
The depreciation expense for 2021 is the depreciation rate per hour multiplied by the actual hours used in 2021:
Depreciation Expense for 2021=Depreciation Rate per Hour×Actual Hours Used in 2021 \text{Depreciation Expense for 2021} = \text{Depreciation Rate per Hour} \times \text{Actual Hours Used in 2021}
Depreciation Expense for 2021=8.54×3,500 \text{Depreciation Expense for 2021} = 8.54 \times 3,500
Depreciation Expense for 2021=29,890 \text{Depreciation Expense for 2021} = 29,890
The amount of depreciation expense for 2021 is:
29,890 \boxed{29,890}

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