This problem will use actual data related to new CNC equipment purchased in the
ID: 2715655 • Letter: T
Question
This problem will use actual data related to new CNC equipment purchased in the IE Department for the FAME lab on the first floor Leonhard Building.
The table below summarizes important data regarding costs for 3 types of equipment. (NOTE: The 3 control simulators are identical and we were given a group price, so you may consider them as 1 asset for your calculations.) The MACRS Class for the simulators is the 5-year class, and you need to determine the MACRS class for the other equipment. Below the table is additional information related to trade-ins and an additional cost.
Equipment
Price
Options purchased
Price
Total price
Freight: California to PA
Site Prep
CNC Lathe (SL-30)
$50,915
Package A
$3396
$54,311
$900
$1000
1 Vertical Machining Center (VF-0B)
$38,165
Package C
$5096
$43,261
$900
$1000
3 Control simulators
$8988
(total all 3)
None
--
$8988
$900
$1000
For the CNC Lathe SL-30: Trade-in allowance of $1100 and book value of $900 for a traded machine
For the Vertical Machining Center VF-0B: Trade-in allowance of $750 and book value of $900 for a traded machine
A rigging crew was hired to unload equipment from trucks and properly locate equipment on the floor of the lab for a total cost of $900 split evenly among the 3 asset categories (CNC Lathe, Vertical Machining Center, Control simulators as a group)
1. How much depreciation can be charged-off in year 1 and year 2 for each asset? Make sure to show all supporting work/calculations.
2. The values in the table are 2009 dollars. The Producer Price Index for Manufacturing Machines/Equipment, was 117.6 in 2009 and 121.5 in 2015 (base year 2003), which can be apply to all 3 assets here.
a) Assume the base period is reset to the year 2009. Compute the inflation rate for Manufacturing Machines/Equipment between 2009 and 2015.
b) Assume the inflation rate you calculated in (a) is expected to continue: If in 2020 the IE Department plans to purchase replacement equipment assets for these 3 assets, how much should the department plan to spend in 2020 on the total purchase price of each asset (not freight or site prep)?
Equipment
Price
Options purchased
Price
Total price
Freight: California to PA
Site Prep
CNC Lathe (SL-30)
$50,915
Package A
$3396
$54,311
$900
$1000
1 Vertical Machining Center (VF-0B)
$38,165
Package C
$5096
$43,261
$900
$1000
3 Control simulators
$8988
(total all 3)
None
--
$8988
$900
$1000
Explanation / Answer
CNC Lathe (SL-30) and Vertical Machining Center (VF-0B) falls under Specialized heavy manufacturing Machinery and hence they are 10-year Class according to MACRS method.
Depreciation charged-off in year 1
a) For CNC Lathe (SL-30)
(Total price - book value for a traded machine) * 200%
= (54311 - 900) * 200% = 106822
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