A machine costing $212.000 with a four-year life and an estimated $18.000 salvag

Question

A machine costing $212.000 with a four-year life and an estimated $18.000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 485.000 units of product during its life. It actually produces the following units: year 1, 122.300; year 2. 124.100; year 3. 120.500: and year 4. 128.100. 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

Ans:

Under Straight Line Depreciation-(212000-18000)/4=48500 for each of four years

Total Depreciation is 212000-18000=190000

Under Units of production Method

Year 1 = 122300/485000*(190000)=47911

Year 2 = 124100/485000*(190000)= 48616

Year 3 = 120500/485000*(190000)=47206

Year 4 = 190000-48000-48960-48000=46266

Total Depreciation is same = 190000

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