A machine costing $212,200 with a four-year life and an estimated $19,000 salvag

Question

A machine costing $212,200 with a four-year life and an estimated $19,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 483,000 units of product during its life. It actually produces the following units: 122,500 in 1st year, 124,200 in 2nd year, 120,100 in 3rd year, 126,200 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.

Explanation / Answer

given data

machine cost = $ 212200

solvage value = $19000

machine produces units = 483000 units

1 st year = 122500

2nd year = 124200

3rd year = 120100

4th year = 116200 (equals to 483000 units)

rate per unit = machine cost / total units produced

                       = 212200 / 483000

                        =0.4 (rounded off)

COMPUTATION OF DEPRECIATION UNDER UNITS OF PRODUCTION METHOD :

COMPUTATION OF DEPRECIATION UNDER DDB METHOD :

depreciation rate = 100% by the number of years of useful life of asset /2

                                = 50 %

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