Flounder Corp. purchased machinery for $355,950 on May 1, 2017. It is estimated
ID: 2571991 • Letter: F
Question
Flounder Corp. purchased machinery for $355,950 on May 1, 2017. It is estimated that it will have a useful life of 10 years, salvage value of $16,950, production of 271,200 units, and working hours of 25,000. During 2018, Flounder Corp. uses the machinery for 2,650 hours, and the machinery produces 28,815 units. From the information given, compute the depreciation charge for 2018 under each of the following methods. (Round intermediate calculations to 2 decimal places, e.g. 5.25 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line (b) Units-of-output (c) Working hours (d) Sum-of-the-years'-digits (e) Declining-balance (use 20% as the annual rate)Explanation / Answer
a.Straight line method = (purchase price - salvage value) / life of the machine
=> ($355,950 - $16,950) / 10 years
=>$33,900.
b.units of out put :
depreciation per unit of output = (purchase price - salvagevalue) / total production units
=>($355,950 - 16,950) / 271,200 units
=>$1.25 per unit.
in 2018 28,815 units are produced
=> depreciation = $1.25 * 28,815 units
=>$36,019.
c. working hours
depreciation per hour = $339,000 / 25,000 hours
=>$13.56 per hour
number of hours used in 2018 = 2,650 hours
=>2,650 * $13.56 per hour
=>$35,934.
d. sum of years digits.
since the machine is purchased on may 1,2017, it finishes its first full year on 30 april 2018.
=> for the first four months of 2018 i.e till 30 april 2018, we have to depreciate by using sum of digits for 10 years i.e, (10 + 9 + 8 + 7 +6 +5 + 4+3+2+1) = 55.
for the next eight months of 2018 , we have to depreciate by using sum of digits for 9 years
=>for the first four months= (10 /55) * $333,900 * 4/12 =>$20,236.
=> for the next eight months = (9/55)* $333,900 * 8/12 =>$36,425.
total depreciation = $20,236 + 36,425
=>$56,661.
e.double declining balance method:
here,
for the first 4 months of 2018 , the depreciation will be ($355,950*20%*4/12) =>$23,730.
for the next 8 months we have, ($355,950 - 20%) =>$284,760 * 20%*8/12 =>$37,968
=> total depreciation for $23,730 + $37,968
=>$61,698
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