Question

A machine costing $207,200 with a four-year life and an estimated $16,000 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: 123,400 in 1st year, 124,200 in 2nd year, 120,900 in 3rd year, 119,500 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

Machine Cost	$                   207,200.00
Estimated life	4 years
Salvage Vale	16000
Depreciable Value (Cost-Salvage Value)	$                   191,200.00
Straigh Line Depreciation
Annual Depreciation	Depreciable Value/ Estimated Life years
	$ 191200/ 4 years
	$                      47,800.00
Year	Depreciation
1	$                      47,800.00
2	$                      47,800.00
3	$                      47,800.00
4	$                      47,800.00
Total	$                   191,200.00
Units of Production Method
Total estimated units of product	$478,000
Depreciation	Depreciable value*Actual units/Total estimated units
Year	Actual units produced	Depreciation
1	$                   123,400.00	$          48,348.52
2	$                   124,200.00	$          48,661.97
3	$                   120,900.00	$          47,369.02
4	$                   119,500.00	$          46,820.49
Total	$                   488,000.00	$       191,200.00
Due to difference in estimated and acutal units produced in 4th year, depreciation shall be calculated for the 4th year as follows:-
Depreciable value - 3 years Depreciation charged
$ 191200 - $ 144379.51 = $ 46820.49