Question

A machine costing $210,200 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 483,000 units of product during its life. It actually produces the following units: 122,000 in 1st year, 122,800 in 2nd year, 120,700 in 3rd year, 127,500 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

Year - a	Depreciable value ($210,200-17,000)	Number of units produced - c	Depreciation expense - d = b/483,000*c
Year 1	$                                         193,200	122,000	$       48,800
Year 2	$                                         193,200	122,800	$       49,120
Year 3	$                                         193,200	120,700	$       48,280
Year 4	$                                         193,200	127,500	$       47,000

DDB Method

Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
1	$                                          210,200	$           105,100	$ 105,100
2	$                                          105,100	$              52,550	$    52,550
3	$                                            52,550	$              26,275	$    26,275
4	$                                            26,275	$                9,275	$    17,000

Stright line method

Cost of asset	$ 210,200
Less: Salvage value	$ (17,000)
Depreciable value	$ 193,200
Life of assets	4 years
Depreciation per year ($193,200/4)	$    48,300

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