A machine costing $211,000 with a four-year life and an estimated $19,000 salvag

Question

A machine costing $211,000 with a four-year life and an estimated $19,000 salvage value is instated in Luther Company's factory on January 1. The factory manager estimates the machine will produce 480,000 units of product during its life. It actually produces the following units: 121,900 in 1st year, 124,000 in 2nd year, 121,600 in 3rd year, 122,500 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.)

Explanation / Answer

Depreciation under SLM :(cost -salvage)/life in years

                       = (211000-19000)/4= 48000

48000

Depreciation under Units of production method : (211000-19000)/ 480000 = $ .40 per unit

Depreciation for year 4 is restricted to 45000 as salvage required is 19000

Year Depreciation expense 1 48000 2

48000

3 48000 4 48000 Total 192000

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