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6 August, 12:03

A machine costing $206,800 with a four-year life and an estimated $16,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 477,000 units of product during its life. It actually produces the following units: 122,700 in 1st year, 123,000 in 2nd year, 120,500 in 3rd year, 120,800 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.) Required: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.)

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  1. 6 August, 12:31
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    Three types of depreciation relevant are straight line depreciation and number of units basis and double declining method

    Straight line

    Machine cost - 206,800

    salvage value - 16000

    Depreciation - 190,800

    Useful life - 4 years -

    Annual depreciation = 47,700.00

    Year 1 = 47,700.00

    Year 2 = 47,700.00

    Year 3 = 47.700.00

    Year 4 - 47,700.00

    Total = 190,800

    B)

    Unit basis

    Estimated unit = 477000

    Actual units produced = 122700+123000+120500+120800 = 487,000

    Excess unit produced = 487000-477000=10000

    Year 1 = 122700/477000*190800 = 49,079.99

    Year 2 = 123000/477000*190800 = 49,199.99

    Year 3 = 120500/477000*206800 = 48,200.00

    Year 4 = 120800/477000*206800=48,320,00

    Total = $194,800

    c)

    Double decline method

    rate = 1/4*2*100=50%

    Year 1 = 50% * 206800 = 103400.00

    Year 2 = 50% * 103400 = 51700.00

    Year 3 = 50% * 51700 = 25850.00

    Year 4 = 50% * 25850=12925.00

    total = 193875.
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