A machine costing $257,500 with a four-year life and an estimated $20,000 salvag

Question

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: year 1, 220,000; year 2, 124,600; year 3, 121,800; and year 4, 15,200. 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.)

  

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: year 1, 220,000; year 2, 124,600; year 3, 121,800; and year 4, 15,200. 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.)

Explanation / Answer

Unit of production method :

Depreciation rate = (257500-20000)/475000 = 0.50 per unit

220000*.50 = 110000

124600*.50 = 62300

Depreciation expense year 1

220000*.50 = 110000

Year 2

124600*.50 = 62300

Year 3 121800*.50 = 60900 Year 4 4300

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