Question

Question: Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of \(43,500. The machine’s useful life is estimated at 10 years, or 385,000 units of product, with a \)5,000 salvage value. During its second year, the machine produces 32,500 units of product. Determine the machine’s second-year depreciation under the straight-line method.

Short answer

The machine’s second-year depreciation is $3,850.

Step-by-step solution

Straight-Line Method

Straight-line depreciation charges the same amount of expense for each period of the asset’s useful life. A two-step process is used. We first compute the depreciable cost of the asset, also called the cost to be depreciated. It is computed by subtracting the asset’s salvage value from its total cost. Second, the depreciable cost is divided by the number of accounting periods in the asset’s useful life.

Computation of depreciation

The machine’s second-year depreciation by the straight-line method is $3,850.