A machine costing $213,600 with a four-year life and an estimated $18,000 salvag

Question

A machine costing $213,600 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 489,000 units of product during its life. It actually produces the following units: 122,500 in 1st year, 122,800 in 2nd year, 120,500 in 3rd year, 133,200 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: 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.)

Explanation / Answer

1. Depreciation based on Straight line method = cost - salvage value / life of asset

= 213600-18000/4

= $48900

2. Depreciation based on use (activity) i.e unts produced

year 1 dep = 213600*122500/499000

= $52436.87

yr 2. dep = 213600*122800/499000

=$52565

yr 3 dep = 213600*120500/499000

= $51581

yr 4 dep= 213600*133200/499000

= $ 57017

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