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Pronghorn Company purchased equipment for $251,930 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,160. Estimated production is 40,300 units and estimated working hours are 20,100. During 2017, Pronghorn uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Pronghorn is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.)

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Answer:

Pronghorn Company

Depreciation Expense under Production Hours & Production Units:

c) Production Unit:

Depreciation Rate =Depreciable amount/Production hours

= $5.90 per unit

for 1,100 units, Depreciation expense = 1,100 x  $5,90 = $6,490

b) Production hours:

Depreciation Rate = Depreciable amount/Production hours

= $237,770/20,100 = $11.83 per hour

For 530 hours, depreciation expense = 530 x $11.83 = $6,270

Explanation:

1. Data:

Pronghorn Company:

October 1, 2017

Purchase of Equipment for $251,930

Salvage value                            14,160

Depreciable amount           $237,770

2. Depreciation Expenses based on production hours and hours are some of the methods to depreciate an equipment used for production.  Using these methods, the depreciation rate is determined and then multiplied by usage (hours or units) to obtain the depreciation expense for the period.  The methods are simple and logical for depreciating production equipment.

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