A machine costing $215,000 with a four-year life and an estimated $19,000 salvag

Question

A machine costing $215,000 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 490,000 units of product during its life. It actually produces the following units: 122,500 in 1st year, 122,600 in 2nd year, 120,000 in 3rd year, 134,900 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

Straight line depreciation (cost - salvage value)/Estimated useful life (215000-19000)/4 49000 Depreciation year expense 1 49,000 2 49,000 3 49,000 4 49,000 units of production Depreciation rate = (215000-19000)/490000 0.4 Depreciable Dep Depreciation Year units per unit Expense 1 122,500 0.4 49000 2 122,600 0.4 49040 3 120,000 0.4 48000 4 124,900 0.4 49960 DDB Rate = 1/4*2 0.5 or 50% Beginning rate Dep Accum' Book year expense dep value 1 215,000 50% 107500 107,500 107500 2 107,500 50% 53750 161,250 53,750 3 53,750 50% 26875 188,125 26,875 4 26,875 29% 7,875 196000 19000

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