Questions: Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of During its second year, the machine produces 33,800 units or 398,000 units of product, with a 4,000 salvage value. Determine the machine's second-year depreciation using the units-of-production method.

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of During its second year, the machine produces 33,800 units or 398,000 units of product, with a 4,000 salvage value. Determine the machine's second-year depreciation using the units-of-production method.
Transcript text: Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of During its second year, the machine produces 33,800 units or 398,000 units of product, with a $\$ 4,000$ salvage value. Determine the machine's second-year depreciation using the units-of-production method.
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Solution

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Solution Steps

To determine the machine's second-year depreciation using the units-of-production method, follow these steps:

  1. Calculate the depreciation expense per unit by subtracting the salvage value from the cost and dividing by the total units of production.
  2. Multiply the depreciation expense per unit by the number of units produced in the second year to get the second-year depreciation expense.
Step 1: Calculate Depreciation Expense per Unit

To find the depreciation expense per unit, we use the formula:

\[ \text{Depreciation per unit} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Total Units of Production}} \]

Substituting the given values:

\[ \text{Depreciation per unit} = \frac{79600 - 4000}{398000} = \frac{75600}{398000} \approx 0.1899 \]

Step 2: Calculate Second-Year Depreciation Expense

Next, we calculate the second-year depreciation expense by multiplying the depreciation expense per unit by the number of units produced in the second year:

\[ \text{Second-Year Depreciation} = \text{Depreciation per unit} \times \text{Units Produced in Year 2} \]

Substituting the values:

\[ \text{Second-Year Depreciation} = 0.1899 \times 33800 \approx 6420.3015 \]

Final Answer

The second-year depreciation expense is approximately \( \boxed{6420.3015} \).

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