A machine costing 210600 with a fouryear life and an estimat

A machine costing $210,600 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 484,000 units of product during its life. It actually produces the following units: 122,300 in 1st year, 122,900 in 2nd year, 119,900 in 3rd year, 128,900 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.) Straight-Line Depreciation Depreciation Expense Year 48,400 48,400 48,400 48,400 193,600 2 4 Total

Solution

1 Straight line Depreciation Method Years Depreciation Expense 1 $                                48,400 2 $                                48,400 3 $                                48,400 4 $                                48,400 Total $                            1,93,600 Under Straight line Depreciation Method Depreciation per annum = (Cost - Residual Value) / Useful Life = ( $ 2,10,600 - $ 17,000) / 4 years = $ 48,400 Units of Production Years Depreciable units (a) Depreciation per unit (b) Depreciation expense (a) X (b) 1                                 1,22,300 $       0.40 $     48,920 2                                 1,22,900 $       0.40 $     49,160 3                                 1,19,900 $       0.40 $     47,960 4 (balancing figure)                                 1,28,900 $       0.40 $     47,560 Total                                 4,94,000 $ 1,93,600 Under Units of Production Depreciation rate per unit = (Cost - Residual Value) / estimated production units ( $ 2,10,600 - $ 17,000) / 4,84,000 $       0.40 4th year depreciation is the balancing figure i.e $1,93,600 - $48,920 - $49,160 - $47,960 = $47,560 Double Declining Balance Depreciation Method Computattion End Of Year Year Book Value Beginning of the year X Depreciable Rate = Annual Depreciation Expense Accumulated Depreciation Book Value 1 $                            2,10,600 X 50% = $ 1,05,300 $     1,05,300 $ 1,05,300 2 $                            1,05,300 X 50% = $     52,650 $     1,57,950 $     52,650 3 $                                52,650 X 50% = $     26,325 $     1,84,275 $     26,325 4 $                                26,325 X 50% = $       9,325 $     1,93,600 $     17,000 Total $ 1,93,600 Under Double Declining Balance Depreciation Method Depreciation Rate under Double declining Method = (100%/4)*2 = 50% 4th year annual depreciation is the balancing figure so that at the end of fourt year we get the salvage value of $17,000.