A machine costing $211,400 with a four-year life and an estimated $17,000 salvag

Question

A machine costing $211,400 with a four-year life and an estimated $17,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 486,000 units of product during its life. It actually produces the following units: year 1, 122,200; year 2, 123,600; year 3, 120,700; and year 4, 129,500. 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.)

$0

Straight-Line Depreciation Straight-Line Depreciation Year Depreciation Expense 1 $48,600 2 48,600 3 48,600 4 48,600 Total $194,400

Explanation / Answer

Depreciation per unit of Production = (Machinery Cost - Salvage Value) / Estimated Production during Useful life of machine

Depreciation Per Unit = ($211400 - $17000) / 486000 Units = $ 0.40 per unit

* As the machine must not be depreciated below its salvage value , year 4 depreciation is a balancing figure i.e.Cost of Machine - Salvage Value - Accumulated depreciation for first 3 years = $211400 - $17000 - $146600 = $47800

Beginning of

period Book Value

Year Depreciation Units Depreciation Per Unit Depreciation Expense 1 122200 $ 0.40 $48880 2 123600 $ 0.40 $49440 3 120700 $ 0.40 $48280 4 129500 $ 0.37 $47800 * Total $194400

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