18.5.4. Units of Production Method

Try these first

1. 1.

   Calculate the depreciation per unit for a machine that costs $10,000, has a residual value of$2,000, and an estimated total production of 20,000 units.

   Hint

   Use the formula: (Cost - Residual value) / Estimated total production.

2. 2.

   What is the residual value if an asset costs $50,000 and its depreciated value after two years of production is$30,000?

   Hint

   Residual value is what you have left after depreciation.

3. 3.

   What is the Units of Production Method used for?

   • Allocating expense based on usage
   • Fixed time period allocation
   • Only for intangible assets

   Hint

   Consider output and usage pattern.

4. 4.

   True or False: The Units of Production Method is nonlinear and varies with usage.

   • True
   • False

   Hint

   Reflect on how this method differs from methods like Straight-Line.

5. 5.

   A company has an asset worth $250,000 with a residual value of$50,000, expecting a total output of 1 million units. In the first quarter, they produced 300,000 units, what will be the depreciation expense for that quarter?

   Hint

   Calculate depreciation per unit first before determining the total for the quarter.

6. 6.

   An asset costs $180,000, has a residual value of$20,000, and is expected to produce 1,000,000 units. If in the second year it produced 250,000 units, what is the current book value after two years of production?

   Hint

   You need to calculate the total depreciation for the second year and subtract from the cost.