Question

Depreciation by Three Methods; Partial Years McMullen Company purchased tool sharpening equipment on May 1 for $162,000. The equipment was expected to have a useful life of three years, or 12,000 operating hours, and a residual value of $3,600. The equipment was used for 2,400 hours during Year 1, 3,900 hours in Year 2, 4,050 hours in Year 3, and 1,650 hours in Year 4. Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Note: Round all values for each depreciation method and each year to the nearest whole dollar.​

Answer 1

Initially, Method 1 is the cheapest at $9,000. However, if the cost of labor rises to $200/unit, Method 1 remains the most cost-effective with a new total cost of $14,000, compared to the higher costs of Methods 2 and 3.

Step-by-step explanation:

To determine the best production method based on the cost of labor and capital, we calculate the total cost of each method as follows:

• Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $5,000 + $4,000 = $9,000
• Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $2,000 + $16,000 = $18,000
• Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $1,000 + $28,000 = $29,000

At the initial cost of labor, Method 1 is the cheapest at $9,000. If the cost of labor doubles to $200/unit, the costs would be:

• Method 1: (50 × $200) + (10 × $400) = $10,000 + $4,000 = $14,000
• Method 2: (20 × $200) + (40 × $400) = $4,000 + $16,000 = $20,000
• Method 3: (10 × $200) + (70 × $400) = $2,000 + $28,000 = $30,000

With the increased labor cost, Method 1 remains the most cost-effective.

Answer 2

Answer:ayton Company purchased tool sharpening equipment on October 1 for $108,000. The equipment was expected to have a useful life of three years, or 12,000 operating hours, a residual value of $7,200. The equipment was used for 1,350 hours during year 1, 4,200 hours in Year 2, 3,650 hours in Year 3, and 2,800 hours in Year 4.

Required: Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

a. Straight-line method. Answer Year 4 amount.

Year Amount

Year 1 $8,400

Year 2 $33,600

Year 3 $33,600

Year 4 $_____

c. Double-declining balance method. Answer years 2 to 4.

Year Amount

Year 1 $18,000

Year 2 $_____

Year 3 $_____

Year 4 $_____

Step-by-step explanation: