Question

A machine costing $211,800 with a four-year life and an estimated $19000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 482,000 units of product during its life. It actually produces the following units: 122,100 in 1st year, 123,300 in 2nd year, 119,900 in 3rd year, and 126,700 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate- this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Answer 1

Answer:

1)

Straight line depreciation:

Cost of the machine = $211,800

Useful life = 4 years , Salvage value = 19,000

Depreciation = (Cost - Salvage value)/useful life = ($211,800-19000)/4 = $48,200.

Deprecaition is same for all the remaining years.

2) Units of production: Year Deprecaible units Deprecaition per unit Depreciation Expense 1                       1,22,100                             0.25                     47,847 2                       1,23,300                         0.2506                     48,318 3                       1,19,900                         0.2437                     46,985 4                       1,26,700                         0.2575                     49,650                       4,92,000                  1,92,800 3) Double declining balance method. Cost = 211,800, salvage value = 19,000, life = 4 Year Beginning of period book value Depreciation rate Depreciation Expense Accumulated Depreciation Book Value 1                2,11,800 50%            1,05,900       1,05,900       1,05,900 2                1,05,900 50%               52,950       1,58,850          52,950 3                   52,950 50%               26,475       1,85,325          26,475 4                   26,475 28.234%                 7,475       1,92,800          19,000 DDB Depreciation formula is as following: Straight line dpreciation rate = 25% Depreciation amount = 2*straight line depreciation rate*book value at the beginning of the year