Question

A machine costing $213,800 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 487,000 units of product during its life. It actually produces the following units: 122,000 in 1st year, 124,100 in 2nd year, 121,100 in 3rd year, 129,800 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.)

1) straight 2)unit of production . c)DDB

Answer 1

Answer 1 ) Depreciation under Straight line method =

(Cost - Salvage value) / Estimated useful life

= ($213,800 - $19,000 ) / 4 years = $48,700

Year	Depreciation Amount
Year 1	$48,700
Year 2	$48,700
Year 3	$48,700
Year 4	$48,700

Answer 2.

Depreciation under unit of production method =

Depreciation per unit = (Cost - Salvage value) / Estimated production

=  ($213,800 - $19,000 ) / 487,000 units = $0.4 per unit

Depreciation under unit of production method = Unit Produce in the year * Depreciation per unit

Year		Depreciation Amount
Year 1	122,000 units * $0.4 per unit	$48,800
Year 2	124,100 units * $0.4 per unit	$49,640
Year 3	121,100 units * $0.4 per unit	$48,440
Year 4	129,800 units * $0.4 per unit	$51,920

Answer 3. Depreciation under DDB method = (1 / Estimated useful life ) * 2 * Book value at the beginning of the year

Year	Book value at the beginning of the year	Depreciation Amount
Year 1	$213,800	(1 / 4) * 2 * $213,800 = $106,900
Year 2	$106,900	(1 / 4) * 2 * $106,900 = $53,450
Year 3	$53,450	(1 / 4) * 2 * $57,950 = $26,725
Year 4	$26,725	($26,725 - $19,000 )[Note 1] = $7,725

Note 1 : Under DDB method, depreciation cease when the book value = the estimated salvage value