Marigold Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $42000 that will produce an estimated 100000 units over its useful life. Estimated salvage value at the end of its useful life is $4000. What is the depreciation cost per unit?

$0.38

Explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset .

Depreciable value

= $42000 - $4000

= $38,000

Given that the plant asset will produce an estimated 100000 units over its useful life,  the depreciation cost per unit

= $38,000 / 100000

= $0.38