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Equipment costs $27,000, has a residual value of $900 and an 8,700-hour useful life. What is the depreciation rate per machine hour under the units-of-production method?
A$3.00
B$3.10
C$9,700
D$8,700
Answer & Solution
Correct answer: A. $3.00
1. Per-unit rate = (Cost − Residual value) ÷ Useful life in hours.
2. Depreciable amount $= \$27{,}000 - \$900 = \$26{,}100$.
3. Rate $= \$26{,}100 \div 8{,}700 = \$3.00$ per hour.
4. Option B forgets to deduct residual value ($27{,}000 \div 8{,}700$).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.5.2 "Units of Production Method", p.155_
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