Question

11-24 A custom-built production machine is being A depreciated using the units-of-production method. The machine costs $65,000 and is expected to pro- duce 1.5 million units, after which it will have a $5000 salvage value. In the first 2 years of oper- ation the machine was used to produce 140,000 units each year. In the 3rd and 4th years, produc- tion went up to 400,000 units. After that time annual production returned to 135,000 units. Use a spread- sheet to develop a depreciation schedule showing the machine's depreciation allowance and book value over its depreciable life.

Answer 1

Depreciable cost of the machine = Purchase price - Salvage value = 65000 - 5000 = $60000

Expected production = 1.5 million units

Depreciation per unit of production = $60000 / 1.5 million = $0.04 per unit

Pls see table below.

Time	Opening Book Value	Production	Depreciation / Production unit	Depreciation	Closing Book Value
Y1	65,000	1,40,000	0.04	5,600	59,400
Y2	59,400	1,40,000	0.04	5,600	53,800
Y3	53,800	4,00,000	0.04	16,000	37,800
Y4	37,800	4,00,000	0.04	16,000	21,800
Y5	21,800	1,35,000	0.04	5,400	16,400