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A new machine costing 1,10,000 was purchased by a company to manufacture a special product. Its useful life is estimated to be 5 years and scrap value of 20,000. The production plan for the next 5 years using the above machine is as follows: Year 1-10,000 units : Year 2-20,000 units: Year 3-24,000 units : Year 4 40,000 units : year 5- 50,000 units. The depreciation for the 1st year under units-of-production method will be?
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A new machine costing 1,10,000 was purchased by a company to manufactu...
Depreciation Calculation using Units-of-Production Method

Step 1: Calculate the total expected production of the machine during its useful life



  • Year 1: 10,000 units

  • Year 2: 20,000 units

  • Year 3: 24,000 units

  • Year 4: 40,000 units

  • Year 5: 50,000 units

  • Total expected production = 10,000 + 20,000 + 24,000 + 40,000 + 50,000 = 144,000 units



Step 2: Calculate the depreciation per unit



  • Depreciable cost = Cost of machine - Scrap value = 1,10,000 - 20,000 = 90,000

  • Depreciation per unit = Depreciable cost / Total expected production = 90,000 / 144,000 = 0.625 per unit



Step 3: Calculate the depreciation for the 1st year



  • Depreciation for the 1st year = Depreciation per unit x Actual units produced in the 1st year

  • Actual units produced in the 1st year = 10,000 units

  • Depreciation for the 1st year = 0.625 x 10,000 = 6,250



Therefore, the depreciation for the 1st year under units-of-production method will be 6,250.
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A new machine costing 1,10,000 was purchased by a company to manufacture a special product. Its useful life is estimated to be 5 years and scrap value of 20,000. The production plan for the next 5 years using the above machine is as follows: Year 1-10,000 units : Year 2-20,000 units: Year 3-24,000 units : Year 4 40,000 units : year 5- 50,000 units. The depreciation for the 1st year under units-of-production method will be?
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