A machine costing $210,000 with a four - year life and an estimated $18,000 salv

Question

A machine costing $210,000 with a four - year life and an estimated $18,000 salvage value is installed 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: 122,800 in 1st year, 123,700 in 2nd year, 120,700 in 3rd year, 122,800 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 available for 480,000 units only

There fore depreciate in the 4 year =210,000-18,000/122,800-10,000(over absorbed units)=$45,120.

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