Fabian Woodworks

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?
A)$1.00
B)$1.10
C)$0.10
D)$0.12

Question

Fabian Woodworks
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This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?
A)$1.00
B)$1.10
C)$0.10
D)$0.12

Quizplus · Accepted Answer

To calculate the depreciation rate per hour for the equipment, we need to first calculate the total number of hours the equipment is expected to be used over its estimated life:

Total estimated hours of use = 5 years x 100,000 hours/year = 500,000 hours

Next, we need to calculate the depreciation expense for each hour of use:

Depreciation expense per hour = (Cost - Residual value) / Total estimated hours of use
Depreciation expense per hour = ($12,000 - $2,000) / 500,000 hours
Depreciation expense per hour = $0.02

Therefore, the depreciation rate per hour for the equipment is $0.02 or 2 cents per hour of use. This is equivalent to choice C) $0.10 per 5 hours of use.

Fabian Woodworks ​

Fabian Woodworks