Case 1. (5 Marks) A Company purchased a machine with a cost of $950,000. The company estimates the machine will have a useful life of 6 years and $50,000 salvage value.

The machine is expected to produce 600,000 units. The machine is estimated produce 150,000 units in year 1.

The machine is expected to run for 450,000 hours. The company projects in Year 1 the machine to run for 150,000 hours. Determine the depreciation expense for year 1 for a) b) c) below and Year 1 and Year 2 for d) double declining balance method.

Formula

a) Straight line method= Cost salvage value / years of useful life

b) Production method = Step 1 Determine cost per unit = Cost salvage / production unit

Step 2 Cost per unit x units produced

c) Machine Hours method = Step 1 Determine cost per hour = Cost salvage / machine hours

Step 2 Cost per hour x hours worked

d) Double declining balance = Year 1 = (Cost / years of life) x 200%

Year 2 = ((Cost Year 1 Depreciation ) /years of life)) x 200%