Question

Shearer's foods, part of the $374 billion global snack food industry, employs 3,300 people in Brewster, Ohio. If Shearer's purchased a packaging unit for $120,440 with a life expectancy of 687,000 units and a residual value of $38,000, what is the depreciation expense for year 1 if 67,000 units were produced?

Answer 1

The depreciation expense for year 1 is approximately $8,040, calculated using the units of production method based on the purchase price, expected life in units, and residual value of the equipment.

Step-by-step explanation:

The question pertains to calculating the depreciation expense for a new packaging unit for the first year based on units of production. Shearer's Foods purchased this equipment for $120,440, with an expected life of 687,000 units and a residual value of $38,000. The number of units produced in the first year is 67,000. To find the depreciation expense, we will use the units of production depreciation method.

First, we calculate the depreciation per unit by subtracting the residual value from the purchase price and dividing by the total number of expected units:

Depreciation per unit = ($120,440 - $38,000) / 687,000 units
Depreciation per unit = $0.12 per unit (approx).

Next, we multiply the depreciation per unit by the number of units produced in the first year to get the depreciation expense:

Year 1 Depreciation Expense = 67,000 units * $0.12 per unit
Year 1 Depreciation Expense = $8,040 (approx).

Therefore, the depreciation expense for year 1 is approximately $8,040.