A machine costing $207,400 with a four-year life and an estimated $15,000 salvag

Question

A machine costing $207,400 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 481,000 units of product during its life. It actually produces the following units: 122,400 in 1st year, 123,900 in 2nd year, 119,700 in 3rd year, 125,000 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.)

Explanation / Answer

Unit of production method :

Depreciation expense per machine hour = (207400-15000)/481000 = 0.40 per machine hour

Depreciation expense Year 1 122400*.40 = 48960 Year 2 123900*.40 = 49560 Year 3 119700*.40 = 47880 Year 4 46000 Total 192400

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