Norwood inc

Question

Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.

Refer to the information about Norwood, Inc.

If Norwood uses the units-of-production method, what is the depreciation rate per hour for the equipment?
a. $7.50
b. $4.00
c. $6.00
d. $5.00

Answer 1

Here ,

 

Purchase price is 80000

Residual value is 5000

 

So, depreciable amount is 80000-5000 = 75000

 

The machine can be used till 12500 hrs

 

so per hour depreciation is = Total Depreciable amount/ Total Depreciable Hours

                                       = 75000/12500

                                       =$6

 

So the answer is  C