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: 220,000 in 1st year. 124,600 in 2nd year, 121,800 in 3rd year, 15,200 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 Prepare a table with the following column headings and compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method.

Explanation / Answer

Straight Line Depreciation = (Original Cost - Salvage Value) /Life

Units of production = Depreciable base / Total Units estimated * Unitsproduced

Double declining Balance = Base * Striaght line rate * 2

Year Straight Line Units of Production Double Declining Balance 1 59375 110000 128750 2 59375 62300 64375 3 59375 60900 32187.5 4 59375 7600 12187.5

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