Question

Required information Problem 7-5A (Algo) Determine depreciation under three methods (LO7-4) [The following information applies to the questions displayed below.] University Car Wash purchased new soap dispensing equipment that cost $246,000 including installation. The company estimates that the equipment will have a residual value of $27,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Problem 7-5A (Algo) Part 2 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.)

Answer 1

The total cost of each method of production is $90. The firm should use the new method because it is more cost-effective with a decreased cost of a machine.

Step-by-step explanation:

To determine the total cost of each method of production, we need to calculate the cost of labor and the cost of a machine for each method. Given that the cost of labor remains at $40 and the cost of a machine decreases to $50, we can calculate the total cost for each method.

For the first method (Old Method): Total cost = Cost of labor + Cost of machine = $40 + $50 = $90

For the second method (New Method): Total cost = Cost of labor + Cost of machine = $40 + $50 = $90

Both methods have the same total cost of $90. However, the firm should use the new method because it is more cost-effective as the cost of a machine has decreased.