Graphic Design Inc. purchased a state-of-the-art laser engraving machine for $65,200. Graphic Design determined that the system had an expected life of 10 years (or 1,500,000 items engraved) and an expected residual value of $8,200.

Required:

1. Determine the amount of depreciation expense for the first and second years of the machine's life using the

(a) Straight-line and

(b) Double-declining-balance depreciation methods.

2. If the number of items engraved the first and second years was 120,000 and 135,000, respectively, compute the amount of depreciation expense for the first and second years of the machine's life using the units-of-production depreciation method.

3. Compute the book values for all three depreciation methods as of the end of the first and second years of the system's life.

4. What factors might management consider when selecting among depreciation methods?