Question

A machine costing $209,200 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 478,000 units of product during its life. It actually produces the following units: 123,000 in 1st year, 124,100 in 2nd year, 121,200 in 3rd year, 119,700 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.)

Answer 1

Solution:

Straight line depreciation:

Year	Depreciation expenses
1	$47,800
2	$47,800
3	$47,800
4	$47,800
Total	$191,200

Working:

Cost of machine =209,200

Salvage value = 18,000

Useful life =4

Depreciation = (Cost of machine -salvage value) /useful life

=($209,200 -$18,000)/4 years

=$47,800

Units of production:

Year	Depreciable units	Depreciation per unit	Depreciation expenses
1	123,000	$0.39	$47,970
2	124,100	$0.39	$48,399
3	121,200	$0.39	$47,190
4	119,700	$0.39	$46,683
Total			$190,242

Working:

depreciation cost = $209,200 -$18,000 =$191,200.

Total depreciable units =123,000+124,100+121,200+119,700 =488,000

Depreciation per unit = $191,200/488,000 =$0.39

	DDB depreciation for the period	End of period
Year	Beginning of period book value	Depreciation rate	Depreciation expenses	Accumulated depreciation	Book value
1	$209,200	50%	$104,600	$104,600	$104,600
2	$104,600	50%	$52,300	$156,900	$52,300
3	$52,300	50%	$26,150	$183,050	$26,150
4	$26,150	50%	$13,075	$196,125	$18,000
Total			$196,125

Depreciation rate = 1/4*100*2 =50%

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