Jay Corp. bought a machine for $15,000. The machine is expected to produce 10,000
units. The machine has a residual value of $5,000. Assuming the machine produces 400
units during Year 1, what should the depreciation expense be?
To determine the depreciation expense for Year 1, we need to calculate the depreciation per unit and then multiply it by the number of units produced in that year.
First, let's find the depreciable cost of the machine. The depreciable cost is the cost of the asset minus the residual value. In this case, the machine's cost is $15,000, and the residual value is $5,000. Therefore, the depreciable cost is $15,000 - $5,000 = $10,000.
Next, we need to find the depreciation per unit. To do this, we divide the depreciable cost by the expected number of units the machine will produce over its lifetime. In this case, the depreciable cost is $10,000, and the machine is expected to produce 10,000 units. Therefore, the depreciation per unit is $10,000 / 10,000 = $1 per unit.
Finally, we can calculate the depreciation expense for Year 1. Since the machine produced 400 units during Year 1, we multiply the depreciation per unit ($1) by the number of units produced (400). Thus, the depreciation expense for Year 1 is $1 * 400 = $400.