A company purchased a machine for $970,000

Management Mar 23, 2021

A company purchased a machine for $970,000. The machine has a useful life of 12 years and a residual value of $4,500. It is estimated that the machine could produce 1,000,000 units over its useful life. In the first year, 200,000 units were produced. In the second year, production increased to 300,000 units. Using the units-of- production method, what is the book value of this asset at the end of the second year of operations?

a. $482,750

b. $487,250

c. $485,000

d. $291,000

e. $289,650

Expert Solution

Answer: b .

Correct options is "B"

= Purchased machine - salvage value

= $970000 - $4500

= $965500

Produced units = 200000 + 300000

= 500000

Capacity remaining = 1000000 - 500000

= 500000

Book value = (500000 / 1000000) * 965500 + $4500

Book value = $487250

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